Suze Orman Says, 'It's Better To Do Nothing Than Something You Don't Understand' — People Are Investing In This Product They Don't Grasp

Well-known financial adviser Suze Orman shared an essential insight on her podcast: the critical importance of fully understanding financial products before investing. 

"It's better to do nothing than something you don't understand," she said.

Orman raises concerns about a trend where individuals are investing in complex life insurance policies — such as whole, universal and variable life insurance — without a complete grasp of the consequences. She has observed an increase in listener inquiries about life insurance policies, indicating a broader lack of understanding of these financial products.

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Orman explains that life insurance is generally aimed at younger people who have not yet built substantial wealth and have dependents. However, the need for such insurance decreases as your financial situation improves with age. Despite this, many are enticed by the appealing, though misleading, idea of benefiting from an investment and life insurance simultaneously.

Orman uses detailed examples to point out the drawbacks of these investments, including instances where people were misled about the returns they could expect. She notes that the optimistic projections offered by insurance agents often fail to match guaranteed outcomes, posing a risk of financial loss. 

“You are being told by some insurance agent that you can have your cake and eat it, too," she said. "You cannot. It is physically impossible to have your cake and eat it, too.” 

Americans buy life insurance for reasons such as burial expenses, wealth transfer, income replacement, supplementing retirement income and covering mortgage payments. These factors emphasize the necessity of choosing a policy that fits your financial strategy. With the cost of similar policies varying by up to 39.6% between companies, and women generally paying less than men, it’s crucial to shop around for the best rate. 

The challenge of making informed decisions is further complicated by a general lack of insurance literacy. A study exploring the impact of insurance literacy on personal insurance decisions found that insurance literacy directly influences consumers’ purchasing decisions, mediated by factors such as trust, perceived benefits and attitudes toward insurance​​. This finding suggests that enhancing insurance literacy could lead to better financial outcomes for consumers.

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However, a gap remains in the public’s understanding of insurance products, with financial literacy not necessarily translating into insurance literacy​. This disconnect indicates a need for more specialized education and resources to help consumers choose from complex insurance options.

At the core of Orman’s counsel is a powerful message: Don’t be swayed by headlines or friends’ get-rich-quick stories when it comes to your finances. This is especially true in regard to complex financial products and ever-shifting markets. 

Take cryptocurrency, for example. While it may be tempting to jump in because it’s the hot topic, a lack of understanding can lead to significant losses. Orman emphasizes informed decision-making across all financial endeavors, not just insurance. She urges her audience to seek transparency and choose investments they can understand, ensuring they are making choices aligned with their goals and risk tolerance.

The do-it-yourself investment route is tempting these days, with information readily available, but consulting a qualified financial adviser is a smart move. Advisers act as expert guides, helping you navigate complex products, assess your risk tolerance and craft a personalized financial plan. They don’t replace the importance of understanding your options, but they provide a valuable layer of professional guidance. Think of it as an investment in your financial future —  an adviser can ensure your journey stays on track to achieve your long-term goals.

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*This information is not financial advice, and personalized guidance from a financial adviser is recommended for making well-informed decisions.

Jeannine Mancini has written about personal finance and investment for the past 13 years in a variety of publications including Zacks, The Nest and eHow. She is not a licensed financial adviser, and the content herein is for information purposes only and is not, and does not constitute or intend to constitute, investment advice or any investment service. While Mancini believes the information contained herein is reliable and derived from reliable sources, there is no representation, warranty or undertaking, stated or implied, as to the accuracy or completeness of the information.