My mom is 71 and debt-free. She's investing $600 a month in a universal life insurance policy worth $250,000 because she wants to leave something behind when she dies. What could she invest this money in, other than the life insurance policy, in order to leave an estate?
This is a good question. You don't use life insurance to leave an estate. It's a bad idea. You leave an estate by saving and investing. The only people who will tell you to use a life insurance policy to leave an estate are life insurance salesmen.
Unless she's ill, I wouldn't keep the policy. Instead, I'd do some long-term investing. It won't take long to get to $250,000 with $7,200 a year. It's the kind of thing that sounds like it'll take forever, but you’ve got to remember you've got growth and interest in the equation. I wouldn't put money into a life insurance policy at age 71, unless there's someone being left behind who really needs the money — and it doesn't sound like there is in this case.
It would probably take about 13 years for the money to turn into $250,000. Assuming she's healthy, I'd rather do that and bet on her living. That way, she can leave an estate and avoid the expense and rip-off part of the universal life policy.
Dave Ramsey is America's trusted voice on money and business. He's authored four New York Times best-selling books: Financial Peace, More Than Enough, The Total Money Makeover and EntreLeadership. His newest book, written with his daughter Rachel Cruze, is titled Smart Money Smart Kids and is out now. The Dave Ramsey Show is heard by more than 6 million listeners each week on more than 500 radio stations. Follow Dave on Twitter at @DaveRamsey and on the web at daveramsey.com.