What Suze Orman Gets Right - And Wrong - About Life Insurance

When it comes to offering financial advice, Suze Orman doesn’t hold back.

For example, she has warned that if someone tries to sell you life insurance as an investment option that can help you get ahead financially, “you are to shut down that conversation and never work with that person again."

That doesn’t mean she rejects the value of life insurance in other situations. But she does have strong opinions on the subject. Here are some situations where Orman is right — and wrong — about life insurance, starting with what she gets correct.

Orman firmly believes that term life insurance is the only way to go. It provides coverage for your family in the unfortunate event of your death.

Term life insurance usually has lower premiums than whole life insurance, making it more affordable. If your goal is simply to protect loved ones financially, term life insurance is often a good option.

Orman is not the only financial expert to question the value of whole life insurance as an investment vehicle.

Many other pros have pointed out that whole life insurance is complex and comes with high fees and commissions. In addition, these policies often come with surrender charges if you try to cash out the policy too early.

Ultimately, Orman believes there are better ways to invest your money. She favors using more traditional, tax-advantaged vehicles such as 401(k)s or Roth IRAs.

Other experts agree, as those vehicles hold out the possibility of high returns with lower fees, which can maximize your bottom line.

Life insurance is not a panacea for everybody’s money problems, according to Orman.

People can have misplaced expectations that whole life insurance will solve their family's and their own money woes. Instead, they would likely be better off focusing on cultivating financial discipline in the here and now.

For example, Orman believes it’s better to work on budgeting, paying down debt, and saving.

Some of Orman’s opinions on life insurance can be off-base. Here are bits of Orman’s advice that you might want to take with a grain of salt.

Orman’s advice to not buy life insurance for kids overlooks many practical reasons why it could be a good decision.

In the event of a tragedy, life insurance can cover funeral expenses and other bills as the family grieves during a devastating time.

Also, policy rates for children are generally quite low. Locking in a policy now means your child retains insurability, even if future health issues arise — such as conditions that would preclude them from being able to get affordable insurance as an adult.

This bit of advice overlooks the unique tax advantages and flexibility that can come with indexed universal life (IUL) insurance policies.

IULs grow tax-deferred, and the cash value can be accessed through loans without triggering taxes — which is appealing to those in a higher tax bracket.

Although Orman warns the average person against using life insurance as an investment, her advice may not apply to high-net-worth individuals.

Some wealthy folks use life insurance as a place to put their money when they have maxed out other investment options — such as a 401(k) plan — and are seeking alternative means of tax-advantaged growth.

A wide variety of whole life insurance options are available, and many can be tailored to meet individual needs.

So, don’t simply reject whole life insurance because of Orman’s opinions. It’s important to look closely at each policy’s terms, flexibility, and long-term costs.

Orman is a trusted voice in finance. But that doesn’t mean her advice is always right for every person or situation.

So, instead of blindly following her opinions, educate yourself about life insurance and consider consulting with a financial advisor or other financial professional who can help you weigh the pros and cons of purchasing it.

Perhaps an advisor can also help you craft the best long-term strategy for saving money now and planning for retirement.