What Does Dave Ramsey Recommend for Life Insurance? A Complete Guide

Dave Ramsey, the popular financial expert and radio host, has specific and consistent recommendations when it comes to life insurance. Known for his straightforward financial advice and debt-free philosophy, Ramsey’s approach to life insurance aligns with his overall focus on simplicity and cost-effectiveness. Let’s explore what Dave Ramsey recommends for life insurance and why his advice has resonated with millions of Americans.

Term Life Insurance Only: Ramsey’s Core Recommendation

Dave Ramsey strongly advocates for term life insurance as the only type of life insurance most people should consider. He explicitly recommends against cash value policies such as whole life, universal life, or variable life insurance. According to Ramsey, “Cash value life insurance is one of the worst financial products available.”

Ramsey’s preference for term life insurance stems from several key principles:

Affordability: Term life insurance typically costs significantly less than permanent insurance options, allowing families to get adequate coverage without straining their budget.
Simplicity: Term policies are straightforward with no investment components or complicated cash value calculations.
Separation of insurance and investments: Ramsey believes insurance should be used solely for protection, while investing should be done through other vehicles like mutual funds or retirement accounts.

The “10-12 Times Your Income” Rule

How much coverage does Ramsey recommend? He advises purchasing term life insurance with a death benefit equal to 10-12 times your annual income. For example, someone earning $70,000 annually should consider a policy with $700,000 to $840,000 in coverage.

This multiplier is designed to:

Replace the insured’s income for an extended period
Allow the surviving family to invest the death benefit
Generate investment returns that can replace the lost income indefinitely

Ramsey’s reasoning is that if the death benefit is invested with an average return of 10-12%, it could generate the equivalent of the deceased’s annual salary without depleting the principal.

Policy Length: “Get Through the Years You Need It”

For term length, Ramsey typically recommends a 15 or 20-year term policy for most people. His guidance is to choose a term that covers your family until your children are independent and major debts like mortgages are paid off.

Specifically, he advises selecting a term that lasts until:

Your youngest child reaches adulthood (at least 18, preferably through college)
Your mortgage and other significant debts are paid in full
You’ve built sufficient retirement savings

For young families with small children and new mortgages, a 20-year term is often appropriate under Ramsey’s philosophy. For those closer to financial independence, a 15-year term might suffice.

Both Spouses Need Coverage

Ramsey emphasizes that both spouses should have life insurance, even if one is a stay-at-home parent. He points out that replacing the services provided by a stay-at-home parent—childcare, household management, transportation, etc.—would be extremely costly.

For non-working spouses, he typically recommends a policy worth at least $400,000, though the exact amount should be based on what it would cost to replace their contributions to the family.

When to Skip Life Insurance According to Ramsey

Ramsey acknowledges that not everyone needs life insurance. He suggests you can forego coverage if you:

Have no dependents relying on your income
Have accumulated enough wealth to self-insure
Are already retired with adequate savings

Working with Independent Agents

For purchasing life insurance, Ramsey recommends working with independent insurance agents rather than captive agents who represent just one company. This allows consumers to compare offerings from multiple providers to find the best rates.

He specifically promotes his network of “Endorsed Local Providers” (ELPs) who share his philosophy on term life insurance.

The Bottom Line: Ramsey’s Insurance Philosophy

Dave Ramsey’s life insurance recommendations can be summarized as:

Buy term life insurance only
Get coverage worth 10-12 times your annual income
Choose a term length that covers your family until financial independence
Ensure both spouses have adequate coverage
Invest the difference between term and whole life premiums elsewhere

This approach aligns with his broader financial philosophy of simplicity, debt avoidance, and building wealth through focused investing rather than complex financial products.

By following Ramsey’s life insurance guidelines, families can secure adequate protection while keeping more of their income available for debt reduction, emergency savings, and retirement investing—the cornerstones of his Financial Peace program.