What should you do with your finances at a time like this?
As the COVID-19 (“coronavirus”) continues to upend Americans’ daily lives, many are wondering about how they should be managing their finances. Brian Madgett, Head of Consumer Education at New York Life, shares five things Americans can do to keep their finances on track – now and for the long term.
1. Re-evaluate your financial plan and stick to the basics.
The basics ring true during both times of growth and times of uncertainty. Having proper life insurance coverage, a well-established emergency fund, a properly diversified investment portfolio within your risk tolerance, and participation in company-sponsored retirement plans to receive any available employer match, are all vital elements of a protection-first financial plan.
“This current environment is a good opportunity to step back and evaluate how you can live within your means,” said Madgett. “In addition to understanding how your income may change and creating a spending plan that is sustainable over time, it’s also a good time to understand your employer benefits and take advantage of flexible spending accounts to offset unexpected health costs or discount programs that could provide special pricing on household items and family care services.”
2. Establish or grow your emergency fund. While it is difficult to focus on saving at a time when Americans are losing jobs, having at least a few months of expenses is critical. Save what you can, and when interest rates stabilize, consider opening a high-yield savings account.
“If you haven’t started an emergency fund, it may feel impossible to build one now. Start with what you can save now, and evaluate opportunities to pause some of the discretionary expenses you regularly incur. With most people staying indoors, considering redirecting commuting and other social funds to your emergency savings account,” said Madgett.
3. Get a handle on debt. Evaluate revolving debt such as credit card debt, personal loans or loans against your home equity and work with your lender to create a plan that is sustainable in this environment.
“Many lenders are now offering opportunities to change or temporarily suspend your payment plan,” added Madgett. “It’s a good time to reach out to your lender or loan servicer to understand the options available to you.”
4. Ensure your protection-first approach has enough protection. Life insurance is the bedrock of a protection-first financial strategy and it’s important to ensure that the coverage you have is adequate for any change in circumstances. If you’re choosing coverage for the first time, ask yourself these five questions.
When it comes to choosing a life insurer, these are some of the key elements to evaluate:
1. What is the insurer’s financial strength rating?
It’s important to know that the company backing your coverage can deliver on its promises today, tomorrow – or whenever the time comes. When you establish your future plans and put your policy in place, trusting that the institution will be able to withstand unanticipated events and a variety of economic conditions over time is vital to insuring your family while ensuring your peace of mind.
2. Does the insurer have an array of products to fit your financial needs?
When selecting a life insurer and policy, it’s important to remember there is no one-size-fits-all approach. It’s just a matter of finding what’s right for your circumstances. For insurance, do you want temporary protection or lifetime coverage? Cash value accumulation or simple, straightforward protection? Would you like a financial professional to help you start thinking about retirement and guaranteed income? Is extended care in the back of your mind? Start with what you think you want and need, as well as how the insurer will be able to support that. The ability to mix and match products, policies and riders will enable you to feel secure and confident that you have the best protection for yourself and your loved ones.
3. Does the insurer offer dividends?
Determine whether the insurer is publicly traded or privately held. If it is a mutual company, that means the insurer doesn’t operate to satisfy outside investors – because it doesn’t have any. When you purchase a participating life insurance policy, you are eligible to receive dividends. As policy owners’ financial needs change over time, many use dividends to increase coverage without additional underwriting, but can also use the dividend to pay a portion of premiums (thus lowering out-of-pocket costs), be taken in the form of a check the policy owner can use in any way they see fit or left on deposit with the company where dividends can earn interest.
4. Does the insurer provide holistic planning and align with your values?
It’s helpful to have guidance as you determine which options and products best align with you, your needs and your values. While you may be only shopping for life insurance, it is worth investigating whether the company you’re buying from offers other financial planning solutions through its affiliates and if your relationship can evolve as your needs in life change. You may also want to understand more about the company’s mission and values to ensure they match yours. Insurance companies are people companies at heart, and it’s a good idea to understand how they serve their policy owners and communities.
5. What level of human guidance would work best for you?
There are several insurance companies and many offer a variety of ways to transact. Some companies only offer purchase through a website. Others offer trained professionals to help guide clients through financial decisions or some combination of online and person-to-person resources. Although it’s common to complete financial transactions online, often a conversation with a financial professional can help ensure you understand how what you’re buying will fit into your overall plans for the future. It’s important to consider whether you’re willing to purchase such an important piece of protection from a newer company without consulting an expert first – or if you’d feel more comfortable buying from a more established brand with knowledgeable financial professionals and a long history of keeping its promises.
“If there are any bright spots among the many terrible consequences of the coronavirus, it’s that Americans continue to prioritize the health and safety of their loved ones. Life insurance is one of the best ways Americans can ensure their families are financially protected,” noted Madgett.
5. Look to the long term. While it’s easy to make emotional decisions about money at a time like this, it’s important not to lose sight of your long-term financial goals and adjust your decision-making accordingly.
“Long-term retirement savings accounts are meant to be just that – long-term,” said Madgett. “Younger savers should stay the course with their retirement savings accounts where possible or consider decreasing contributions to ensure they are still able to receive an employer match. While those closer to retirement may have less time to recoup market losses, considering guaranteed lifetime income can help ensure basic retirement needs are met."