Suze Orman is a personal financial guru that generally believes that term life insurance is the best use of life insurance for most Americans. According to multiple public remarks on the subject she believes that "Unless you have a permanent need for life insurance—such as a special needs child—term insurance is the better deal for you." And " likely (you) only need life insurance for a certain number of years."
We agree with much of Suze Orman states about life insurance. Therefore we present to you, our readers some of Suze's most notable quotes on Life Insurance.
Suze Orman on Life Insurance:
Ms Orman is one of the so called television financial gurus who offers up financial advice for millions of Americans. Many insurance agents believe that her opinions do not and should matter. However given the broad audience to whom watch her shows - her opinions do truly matter. At Whole Vs Term we often are in general agreement with her regarding to the need for, the type and kind of, and many other life insurance related matters. To that end this article is written to explain some of our agreements and a few things that we may slightly disagree about.
Ms. Orman on the Need for Life Insurance:
"If a child, a spouse, a life partner, or a parent depends on you and your income, you need life insurance."
Ms Orman is correct with regards to whom most needs term life insurance. If someone financially depends on you - get life insurance ASAP. Really if anyone financially depends on you - you probably should consider purchasing life insurance. Especially if you are a parent - more than likely you need term life insurance.
"it is financially irresponsible to not have life insurance if there is anyone dependent on your income."
I agree with this statement and I am not certain how to better clarify or reiterate it. If you have children, get life insurance, for their sake. Guardians and Parents that have children, that can afford a term policy, are truly not being as responsible as they can if they do not have it.
Suze on Estate Planning (and Life Insurance):
"I want to be clear here: It does not matter what you say in your will or trust; the beneficiary document attached to your IRA accounts and your life insurance policy overrides what you say elsewhere. If you want to change the beneficiary, you must change the beneficiary document."
Ms Orman is absolutely correct about the life insurance beneficiary form. Fill it out the way you want it. If need be, change it. (It is typically not difficult to change a life insurance beneficiary form.) Generally speaking what your beneficiary form says is where the death benefit will go. There are of course exceptions to this - such as if the beneficiary form is contested.
I could not agree with Mr Orman about the love that proper estate planning shows more. Setting things up for when you pass really does say I love you. In many ways procuring the proper amount of life insurance is an integral part of this. Plan to succeed. Succeed and Plan.
Of course any legal consideration that you make - probably should be from the advisement of an attorney.
"Once you’re ready to purchase life insurance an important step is to name a beneficiary for the policy. Please know the absolute worst thing you can do is name a minor child as the beneficiary. Children under the age of 18 are not allowed to directly inherit any money. If you leave money to a minor, your beneficiaries will be hauled into a court, where a judge will be appointed to oversee how the money is spent. That’s going to be a huge hassle.
The better move is to create a living revocable trust, and name the trust as the beneficiary of the life insurance policy."
When under age minor children receive lump sums of money after the death of a parent, the results are exceedingly complicated. In general it is a often better advice to have a trust be the recipient of the funds. The trust will then essentially be the rules whereby how the money can be used. See an attorney for their opinion on this matter.
Ms. Orman on How Much Life Insurance is Needed (and for How Long):
"Aim for a death benefit that is at least 20 times your loved one’s income needs. Let me be clear, if you are relying on life insurance through work, you do not have anywhere near enough protection. Most employers provide just one year’s income. It sounds like a lot, but it’s not really enough to take care of your loved ones. One year’s salary isn’t going to help pay the mortgage for very long, or help send a five year old to college."
Ms Orman is basing her life insurance needs estimates on "income needs" and not the more typical simple current "income." There is nothing wrong with this, its just not as commonly done. I am not certain that it is as clear. The most often quoted quantity of life insurance is ten times earnings. So it seems that she is recommending that consumers purchase much more than that amount. For many middle class Americans, I think this can make good solid sense. For those that are wealthier, it often does not make sense to pay to insure something that you can afford to replace yourself. As such if you have a solid net worth, twenty times and even ten times income might be too much.
However Ms Orman and myself are mostly still on the same page about the need for life insurance and even we slightly disagree on the exact quantity. My simple take on this is if you can afford twenty times, do it. But for many this might not be realistic.
"You likely only need life insurance for a certain number of years. For example, until the kids are grown. Or until you have accumulated other savings that can support your family."
We are in agreement on this one completely. You only need life insurance during the times in which your death would create economic hardships on others. Typically retirement is not one of those times. Typically if you have no kids living with you, you probably do not need (much) Life insurance. There are however times when a simple term policy may be needed during retirement. If, as an example, a spouse depends on a pension from a spouse, and that spouse is required to be alive for that pension check to come in
Suze Orman on Group Life Insurance, Through Work:
"One of the most dangerous mistakes you can make is to rely on the life insurance your employer offers up as benefit. Here’s why:
- Most employers set the death benefit at one or two times your annual salary. ...It’s not enough!
- Employer-provided life insurance is only good for as long as you stay with that employer. Get laid off or switch jobs and you are suddenly without life insurance...
The bottom line is that if you need life insurance, you are far better off shopping for it on your own."
I agree with Ms Orman that solely depending on Group Work Life is not the best bet. (Often its not even a good bet.) In general I believe that your best bet is to take what is free from work and build your own policy on top of this. If you have a major health issue, one that makes you un-insurable, than perhaps solely using additional group work can make sense.
Ms. Orman on State Insurance Regulation:
"Insurance companies, agents, and policies are primarily regulated by state, not federal, laws. Each state has a department of insurance that is responsible for such regulation. Be sure to consult the department in your state and an expert in the laws of your state when you are making decisions about your own insurance needs."
She is 100% correct on this. In general, life insurance companies are regulated by the states and not the federal government. (Although it might not technically be correct to say that federal law does not at all regulate insurance.) Therefore if you have a question or an issue with an insurer: Your State Regulator is the place to go. I agree with Ms Orman that checking with your state regulator about a given insurer makes sense. The issue is that that some states are far better at providing information than others. If you are lucky to live in a state such as New York or California where there is lots of public information, great. But for those that live in smaller states - you may not be able to find my information about a given insurer.
Another option, one in which Suze also recommends on her site is to check Financial Strength Ratings (FSR.) FSR and PHS ratings are key metrics that all consumers should check before buying any type of insurance. Whereas regulators often tend to provide information concerning consumer complaints and insurance statues, FSRs and PHSs are financial metrics. These two metrics can be pulled from a number of Credit Rating Agencies. It is our belief that AM Best is often a consumer's best choice for this.
Suze on Guaranteed Issue Whole Life:
"Guaranteed Acceptance Life Insurance is designed to appeal to older Americans who want to make sure that when they die there is ample money for their heirs to pay for a funeral, and any outstanding bills, such as medical bills. The big come-on is the guaranteed part: there’s no medical exam. You can have all the pre-existing conditions in the world and you will still be given a policy. No one is turned down.So what’s not to like? The pricing...If you want $10,000 to cover your funeral costs and some bills, and you are currently 50, you might end up with a monthly premium of $40 or so a month. That’s $480 a year."
Guaranteed Acceptance Life Insurance, also known as Guaranteed Issue Life, is a form of whole life insurance for those usually over 50 years of age that cannot qualify for term policies. It really SHOULD ONLY be for those that cannot qualify for other lower costed products and that absolutely need life insurance. Many consumers that have preexisting conditions can now qualify for term insurance, so the use of guaranteed issue policies should be less than it once was.
Ms Orman does not appear to be a big fan of Guaranteed Issue, and we are not either.
Ms. Orman on Whole, Term, and Pushy Insurance Agents:
"Be very skeptical of life insurance agents who don’t tell you about term life insurance. Many agents love to steep people into “permanent” life insurance plans, and part of the pitch is that the policy has an investment component that can be worth a lot. What they don’t often mention is that the commission they earn on a permanent policy is a lot more than what they will get if you buy the term policy. And your premium costs will be so much higher with a permanent policy.
Unless you have a permanent need for life insurance—such as a special needs child—term insurance is the better deal for you. Notice I said, ‘for you.’ Term insurance isn’t the best deal for life insurance agents. Keep that in mind."
At Whole Vs Term - we start and (usually) end with Term Life. Yes, whole life is correct for a select few and Universal... well possibly a few. In general though Term Life Insurance has financially proven itself to be the best option for the masses. Its affordable, its temporary, its easy to get, and insurers are writing more and more consumers with it.
About Suze Orman, a Short History:
Suze Orman grew up with more adversity than many. As a child she had a speech impediment and had trouble reading. Her family did not have much money and she had to pay for the cost of college herself.
She graduated from the University of Illinois in 1976, majoring in Social Work. Ms Orman began her financial career with Merrill Lynch and later moved on to Prudential Bache Securities. She founded the Suze Orman Financial Group in 1987 just outside San Francisco California. According to Wikipedia, her first pseudo publication was "The Facts on Single Premium Whole Life which compared single-premium whole life, universal life, and single-premium deferred annuities."
She began publishing books in 1997 - The 9 Steps to Financial Freedom and started a show on CNBC in 2002, titled the Suze Orman Show. She writes a financial advice column for the Oprah Magazine and has had television specials on PBS. She has numerous financial related products that revolve around her books and a will kit. Her mantra is: "People First, Then Money, Then Things
Ms. Orman generously donates her time (through Suze Orman Partner) to a "gratuitous services agreement that will strengthen soldiers’ financial readiness through an informational video series, town hall discussions, base visits, and written material....A gratuitous service agreement allows a person or organization to provide expertise without expectation of compensation, financial benefit, or reimbursement in any manner for providing those services." In other words she benevolently uses her time to assist in strengthening our soldiers lives. Thank you Suze.
About this Article:
Suze Orman did not request, approve, or in any way shape or form authorize this article. This article was written using public comments and words taken (often but not always) directly from her website. In all cases we have used quotes that we believe demonstrate her opinion about all things life insurance related. If any reader should notice any misquote or error, please contact us immediately to inform us; Accuracy is our goal.