Beware of those return of premium policies
I'm thinking about signing up for a return of premium life insurance policy. It costs more per month than other policies, but it allows you to get all your money back after 30 years assuming you live that long. Is this too good to be true?
It's not too good to be true, but it is a rip off. Never buy a return of premium life insurance policy.
You said it costs more than other policies, right? Well, if you were to take that extra money you'd be paying and put it into a good mutual fund, you'd get all the cost of your policy back after 30 years 100 per cent of the time. Return of premium policies are just a gimmick.
When it comes to life insurance, always go with a good, 15 to 20-year level term policy. And always stay away from that return of premium garbage.
I'm on Baby Step 1 of your plan, and I work at a community college that takes a mandatory 20 per cent from our pay for retirement. I know you say retirement contributions should be put on hold until all debt except for your home is paid off, so do you have any thoughts on this kind of system? It feels like it's hard to get traction with getting control of my money when so much is being taken out of every paycheque.
That is a lot to take out. I've heard of a few places that have a mandatory 12 per cent contribution, but 20 per cent? That's very unusual. And it's unusually high.
I'm not sure what to tell you. I mean, you took the job. It's what you signed up for. But if it becomes enough of an issue with your finances, you may have to decide at some point if you still want to work there. My recommendation is to begin setting aside 15 per cent of your income for retirement after you've paid off all debt except your home, and you have an emergency fund of three to six months of expenses in the bank.
At least you're not losing the money, so it's not the end of the world. It's your money that's going in there for your use some day. I don't know the exact structure of the retirement account, but it is going towards retirement savings of some kind — and that's important.
• Dave Ramsey is CEO of Ramsey Solutions. He has authored seven bestselling books, including The Total Money Makeover. The Dave Ramsey Show is heard by more than 14 million listeners each week on 600 radio stations and multiple digital platforms. Follow Dave on the web at daveramsey.com and on Twitter at @DaveRamsey.