Smart Money: Financial Fears, and Do You Need Life Insurance?

Smart Money: Financial Fears, And Do You Need Life Insurance?
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Welcome to NerdWallet’s Smart Money podcast, where we answer your real-world money questions.

This week’s episode starts with a discussion about overcoming our financial fears.

Then we pivot to this week’s money question from Elizabeth, who wrote this email: “Hello Nerds. I’m currently in the process of finalizing my will, medical power of attorney and other legal documents. This got me wondering if I should get life insurance. I’m 34 years old, single and healthy. I don’t plan on having children so I feel like I don’t fit the typical life insurance mold. However, if I were to go sooner rather than later, I’d like to leave enough money to cover the remainder of my mortgage and any other outstanding debts. I also wouldn’t mind leaving my siblings some money, or my nieces for their education. Is life insurance a good use of money in my situation? Thanks, Elizabeth.”

Check out this episode on any of these platforms:

Our take on financial fears

Many people feel fear, anxiety and shame when they think about their finances, but there are strategies and resources that make it possible to overcome these difficult emotions. First, identify the aspect or aspects of your financial life that make you feel afraid or anxious. Is it retirement? Your son’s college fund? A huge medical bill? Next, address those financial pain points head on. For example, you could begin researching retirement brokers or open up a savings account for health care costs. Schedule regular check-ins to assess your progress and maintain the habit of staying on top of your financial health.

If feelings of fear and shame have paralyzed you from taking action, seek professional help. Look for a financial therapist through the Financial Therapy Association, or connect with a credit counselor through the National Foundation for Credit Counseling. If you choose a certified financial planner instead, make sure the CFP you work with is a fee-only, fiduciary planner.

Our take on life insurance

If you have financial dependents, life insurance may be necessary to safeguard their future in the event of your death. Beneficiaries can use the payout from a life insurance policy to pay for expenses large and small, from the mortgage to groceries. Group life insurance policies, which are typically offered through an employer, usually pay out one to two times your salary. Many people supplement a group life insurance policy with term or permanent life insurance.

The cost of life insurance depends on how much coverage you want. Permanent life insurance covers you for the rest of your life and, as such, it’s usually much more expensive than term life insurance. Term life insurance only covers you for the length of the policy that you purchased — for example, 15 years. When purchasing term life insurance, try to pick a policy that covers your specific financial obligations. For instance, if you have 17 years left until your house is paid off, consider a 20-year policy. A good rule of thumb: Calculate the expenses you pay for now — as well as how much you expect to pay in the future — and buy a policy that matches that number.

If you don’t have any financial dependents but plan to have them in the future, it still may make sense to get life insurance now. The cost of life insurance is partly based on the applicant’s age and health, so by buying a policy when you’re younger, you can lock in a better rate than what you might receive if you buy five or 10 years from now.

Our tips

  1. Be proactive: Buy life insurance if you have financial dependents. The younger you are when you get it, the less you’ll typically pay.
  2. Update as needed: Review your life insurance coverage with every major life change, such as getting married, buying a house or having a child.
  3. Shop around: Compare quotes from at least three insurers. Prices can vary, sometimes significantly. Shopping around can save you a lot of money over time.

Have a money question? Text or call us at 901-730-6373. Or you can email us at podcast@nerdwallet.com. To hear previous episodes, go to the podcast homepage.