Dave Ramsey isn't always right, but once in awhile he hits the proverbial nail directly on the head.  Yesterday's (March 4) edition of his radio show was a great example of this.  At about 43 minutes into the show, you can hear Dave discuss the virtues (or lack thereof) of whole life insurance, particularly expensive whole life policies from companies like Northwestern Mutual and New York Life.

He refers to whole life insurance as "the payday loan of the middle class."  If you don't get that reference, payday loans are a horrible product.  They charge ridiculous interest rates and take advantage of unfortunate people that need money to make it until they receive their next paycheck.  Many states are enacting legislation to help keep the companies that offer these products in check because they are so abusive.

Scott Maxwell and I listened to the segment again today and we ran the numbers to check Dave's math.  He's not dead on, but he's close enough to support the point that he's making.  Of course, a Northwestern Mutual salesman will disagree, and that's the problem.  The investment community points to terrible products like whole life and then uses a broad brush to paint all insurance products as expensive and awful - and all insurance agents as lying salesmen.  Conversely, the insurance industry tries to convince everyone that the capital markets are dangerous and evil and that the typical investor in them is doomed.  Of course, neither of these polarized positions is correct. 

So, the fundamental question is obvious.  Who do you trust?  It's time for some critical thinking.  Should you trust the insurance salesman that works for a particular company and only sells their products?  Is he going to tell you that another company's product is better than the one he sells?  He won't earn a commission that way, so it's unlikely.  Should you trust the advisor that only works with investment products?  Do you think that he will recommend an insurance product if it's right for you?  He can't get paid for it.  Will he place your best interest above his own self-interest?  What about a broker-dealer representative that also has his insurance license?  If he's paid on commission, will he recommend a product that pays him less if it's the right thing for you?  You'd hope so, but it certainly does not always happen.

The bottom line - work with an independent registered investment advisor that clearly discloses the way he is compensated and can offer both investment and insurance products.  In addition to the disclosure, registered investment advisors are required by law to put the client's best interest first.  This is the fiduciary standard that we've talked about before and it is a much higher standard than the suitability standard that applies to insurance salesmen and broker-dealer representatives.  Within our firm, Scott Maxwell, Greg Schmitz, and Bob Lamse are all licensed to work with insurance products under the fiduciary standard.