This claim is frequently made by Dave Ramsey, who is a radio host with a very big audience, so it is notable. It is also featured in his website - http://www.daveramsey.com/article/the-truth-about-life-insurance/

His claim is, basically, that whole life insurance is a 2-in-1 package of insurance coverage + built-in savings account. However, he claims, paying for the same amount of term life insurance coverage and then investing the difference in fees in a regular bank account or mutual funds would give you better returns.

As an example, let's say that you buy life insurance coverage for $1,000,000 for $1,000 yearly fees, but term life insurance for $1,000,000 costs only $100 in fees, and you invest the $900 difference into a bank account or some appropriate investment vehicle. If an accident happens, you get the $1,000,000 face value both ways, but if no accident happens, according to his claim, you would end up with more money in your bank account than in your whole life insurance policy, while getting the same amount of actual insurance.

Is that true?

  • So what are you skeptical of? The maths behind this? – Jamiec Mar 13 '14 at 17:37
  • Well, I'm not skeptical per se, actually I'm more inclined to believe the claim than to disbelieve it. It's just that I'm honestly uncertain and want to know for sure, to put it to the test, so to speak. Is it a requirement that the OP is personally skeptical of a claim in order to post it here? – sashoalm Mar 13 '14 at 17:41
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    then you would get better advice on money.SE – ratchet freak Mar 13 '14 at 20:52
  • Insurance companies invest their capital very conservatively, so it's probably accurate that the return on whole life is below what you might get investing a similar amount in most markets. OTOH, my whole-life policy maintained its steady value throughout the recent economic crisis and could have been used as collateral for its full amount during that time, etc. So I view it as a very different kind of investment. – Larry OBrien Mar 13 '14 at 23:17
  • The author makes a lot of claims, each can be right or wrong. We can't give investment advice! Please choose a single disprovable claim to investigate. – Sklivvz Mar 14 '14 at 14:50

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