What Does Suze Orman Say About Life Insurance?

Suze Orman is a well-known financial expert offering extensive guidance on personal finance, including life insurance. Her perspectives are recognized for their directness and emphasis on practical financial decisions. Her approach to life insurance centers on protecting dependents and ensuring financial stability without intertwining insurance with investment strategies.

Suze Orman’s Stance on Term Life Insurance

Suze Orman consistently advocates for term life insurance as the preferred choice for most individuals. She emphasizes that term life insurance serves as a pure form of income replacement, designed to financially protect those who rely on an individual’s earnings. This type of policy provides coverage for a specific duration, typically 10, 20, or 30 years, aligning with periods of significant financial responsibility such as raising children or paying off a mortgage.

The affordability of term life insurance is a primary reason for her strong recommendation. Premiums for term policies are generally lower than those for permanent life insurance, making them accessible to a broader range of consumers. She views life insurance as a tool solely for protection against financial hardship in the event of an untimely death, not as a savings or investment vehicle.

Suze Orman’s Views on Permanent Life Insurance

Suze Orman generally advises against permanent life insurance policies, such as whole life, universal life, and variable universal life, for most people. Her critique stems from the belief that these policies often combine insurance coverage with an investment component, which she argues is not financially advantageous. These policies typically come with higher premiums compared to term life insurance, and a significant portion of these costs may go towards fees and commissions rather than direct investment growth.

She contends that the investment returns offered by permanent life insurance policies are often lower than what could be achieved through alternative, separate investment vehicles. Orman’s “buy term and invest the difference” philosophy suggests that individuals should purchase an affordable term life policy and then invest the premium savings in other financial instruments, such as retirement accounts or mutual funds. This approach aims to provide greater control over investments, potentially higher returns, and more transparency regarding fees. She views permanent life insurance as overly complex and not transparent enough for the average consumer, leading to less optimal financial outcomes.

Key Considerations for Life Insurance According to Suze Orman

She asserts that life insurance is necessary for anyone with financial dependents, including children, spouses, or parents or siblings who rely on their income. The determining factor is whether someone would experience financial hardship if the policyholder were no longer able to provide income.

Regarding the amount of coverage, Orman suggests a death benefit that is a multiple of annual income, recommending 20 to 25 times the income that needs to be replaced. For example, a person earning $50,000 annually might consider a policy with a death benefit between $1 million and $1.25 million. This substantial coverage aims to provide beneficiaries with enough capital to invest conservatively and generate a replacement income, ensuring long-term financial security.

The duration of the term policy should align with the period of financial dependency, such as until children are grown and independent or until significant debts like a mortgage are paid off. When purchasing a policy, she advises comparing quotes to find an affordable level term policy from a financially sound insurer.