Dave Ramsey says this type of insurance policy “will provide your family with very little financial security”

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Don’t waste money on coverage that could deprive your loved ones of the funds they need.


Key points

  • Life insurance is important to provide financial security to surviving dependents in the event of premature death.
  • Not all types of life insurance offer this security.
  • Dave Ramsey warned that mortgage life insurance and credit life insurance policies are not providing the financial help that many families need.

Life insurance exists to provide peace of mind and to ensure that loved ones do not face a loss of earnings in the event of an untimely death. But not all policies offer the necessary protection against a currency crisis.

In fact, finance guru Dave Ramsey warns that buying a particular type of life insurance could leave families with “very little financial security” in the end. Here’s why.

This coverage offers too little protection

The type of life insurance that Ramsey warns against is mortgage life insurance and credit life insurance. These types of fonts are classified as “decreasing duration” fonts. Here’s how they work, according to Ramsey.

“As you pay off your debts, your death benefit also decreases. Specific examples of this type of insurance include mortgage life insurance and credit life insurance. In these examples, the death benefit is designed to follow the amortization schedule of a mortgage or other personal insurance. ready,” says the Ramsey Solutions blog.

Basically what happens is that the insurer agrees to pay off the remaining balance of any credit card debt or mortgage debt that the deceased person owed upon their death. As Ramsey put it, “policies are advertised as a way to settle debts or pay off your mortgage if you die.”

Why won’t these policies be enough?

First, it is impossible to know how much will be owed on these loans at the time of death. So there is no way to predict how much the policy will pay. “You never know how much they’re going to be worth when you die, so they offer your family very little financial security,” Ramsey said.

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Second, since these policies only pay off the remaining balance of the loan, they do not provide any other type of financial assistance to surviving dependents. Those left behind “potentially inherit nothing more than debt paid off or repaid, but no money in their pocket,” Ramsey warned.

Many people need additional funds to cover funeral expenses or to replace income the deceased was earning prior to death. While paying off a mortgage or credit card might help them a little, it won’t help them pay final burial costs or cover other bills such as child care payments. or groceries once they no longer receive support from the Deceased Person.

Should consumers listen to Ramsey and stay away?

Ramsey is correct that buying decreasing term life insurance makes little sense to most people. Instead, it’s smarter to buy a term life insurance policy.

Term life insurance policies pay a death benefit and policyholders can decide the amount of that death benefit. The policyholder can choose to obtain sufficient cover so that the payment is sufficient to pay off the entire debt and still leave a lot of money for other things.

So not only will a term life insurance plan ensure that no debt remains, much like mortgage and credit insurance, but it can also provide additional coverage. And a term life insurance policy is usually much better cost than decreasing term coverage.

In that case, listening to Ramsey is definitely a smart move.

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