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I heard you can accrue cash and pay interest to yourself with whole life insurance. Is it worth it?

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Dear Dave,

I have a question about self-banking with whole term life insurance. The way I understand it, you can accrue a cash balance, borrow against it, and then pay interest to yourself. Is this worth it, or should I stay away from it and continue using a bank?

Kunal

Dear Kunal,

Actually, it’s a whole life policy, not a term policy. And it’s an absolute scam.

Basically, with whole life you pay about 20 times more for the same amount of insurance that you would with a term policy. The extra money goes into a savings account, and you earn next to nothing on it, even after you finally start to build it up. One of the ways they’re pitching it now is the self-banking concept, where you can use your own money. It’s nothing magical because with a regular checking account you use your own money.

My advice is to stay away from the company that’s offering it and anything else they have. It’s a really bad product and it’s a scummy way to sell whole life insurance — which is an awful product to begin with. No one, except for folks in that business, believes in it or talks positively about it anymore.

Being able to borrow your own money? Really? Why on earth would anyone want to borrow their own money? It’s ridiculous!

—Dave

Dave Ramsey

About Dave

Dave Ramsey is CEO of Ramsey Solutions. He has authored several best-selling books, including "The Total Money Makeover." The Ramsey Show is heard by more than 16 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.

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