How to Prepare for Stagflation and Make Your Insurance Work Harder

Summary

NerdWallet's Smart Money Podcast: How to Prepare for Stagflation and Make Your Insurance Work Harder Release Date: May 22, 2025

In this episode of NerdWallet's Smart Money Podcast, hosts Elizabeth Ayoola and Evelyn delve into two critical financial topics: understanding stagflation and optimizing life insurance coverage. The episode provides listeners with valuable insights into navigating economic uncertainties and making informed insurance decisions to safeguard their financial future.

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1. Money News Roundup: Understanding Stagflation

Defining Stagflation The episode begins with a comprehensive explanation of stagflation, a rare and challenging economic condition where inflation and economic stagnation occur simultaneously. Elizabeth introduces the segment, stating:

"What it means if the economy enters into something called stagflation." [00:50]

Economists, represented by guest Taryn Phaneuf, clarify that stagflation combines rising prices (inflation) with sluggish economic growth and increasing unemployment—conditions that typically do not coexist.

"Stagflation describes a rare set of circumstances in the economy when inflation and stagnation occur at the same time." [01:08]

Signs of Stagflation Taryn outlines the key indicators economists watch for stagflation:

• Rising prices (inflation)
• Slowing or flat productivity
• Increasing unemployment
• Stagnant wage growth

"If wage increases are keeping pace with prices, consumers have a better chance of weathering the storm." [02:14]

Historical Context: The 1970s and 1980s The discussion shifts to the stagflation era of the 1970s and early 1980s, highlighting the multiple crises that led to prolonged economic stagnation and high inflation. Key factors included:

• Increased government spending due to the Vietnam War and domestic policies
• Multiple recessions and energy crises, notably oil price spikes

"When inflation reached more than 12% in November 1974, unemployment was at almost 7%... inflation hit almost 15% in March 1980." [03:26]

These historical challenges prompted significant changes in U.S. monetary policy, helping to prevent similar stagflationary periods in recent decades.

Current Economic Climate and Comparisons The hosts discuss whether stagflation is a concern in the present economy. Taryn explains that while some indicators are worrisome—such as a slight rise in unemployment and negative GDP growth in the first quarter of 2025—overall inflation remains below historical highs.

"Inflation has cooled. April's Consumer Price Index... is heading toward the Fed's target range of 2%." [06:09]

Additionally, current oil prices have decreased to their lowest levels since 2021, mitigating one of the previous catalysts for stagflation.

Government Tools to Combat Stagflation Addressing potential solutions, Taryn notes the complexity of tackling stagflation due to the opposing nature of required policies:

• To combat inflation: The Federal Reserve may raise interest rates.
• To stimulate growth: Lowering interest rates would typically be employed, but this conflicts with measures to reduce inflation.

"When both inflation and stagnation hit at once... those tools can work against each other." [05:29]

The Federal Reserve remains cautious, balancing these conflicting needs as it monitors economic indicators closely.

Preparing for Potential Stagflation Evelyn offers actionable advice for listeners to safeguard their finances against the possibility of stagflation:

1. Build or Rebuild an Emergency Fund: Utilize high-yield savings accounts to protect savings from inflation.
2. Reduce Debt: Prioritize paying off high-interest debts, such as credit cards, especially in a high-interest rate environment.
3. Postpone Major Purchases: Maintain a cash cushion by delaying significant expenses.
4. Stay Open to Job Opportunities: Enhance earnings potential amidst uncertain job markets.

"Start by building or rebuilding your emergency fund... consider what major purchases or expenses you can postpone." [07:03]

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2. Listener Question: Optimizing Life Insurance Coverage

Listener Introduction: Adam's Financial Journey The second segment features Adam from Pennsylvania, a physician with over 20 years of experience. Adam shares his financial landscape, highlighting strengths in savings and retirement planning, alongside areas needing attention, such as college fund savings for his three children.

"I've been working as a physician for about 20 years now... I certainly feel like I'm lacking a little bit in their college fund savings." [10:04]

Life Transitions Impacting Financial Plans Adam recently remarried, which significantly altered his financial situation. Previously divorced, the merger of households introduced new dynamics in budgeting and financial responsibilities.

"I was divorced four years ago... I just recently got remarried and... that changes things again." [11:22]

Insurance Coverage Concerns: Umbrella vs. Collision Insurance Adam questions whether increasing his umbrella insurance coverage allows him to reduce his collision auto insurance. He currently holds two term life insurance policies totaling $2 million and an umbrella policy, which he recently elevated from $1 million to $2 million to match his increased net worth.

"Would it make sense to just lower my collision coverage if I have a higher umbrella insurance coverage?" [14:31]

Hosts' Advice on Insurance Optimization Evelyn and Elizabeth provide insights into managing insurance policies effectively:

• Minimum Coverage Requirements: Umbrella policies often require maintaining specific minimums for home and auto insurance. Reducing collision coverage below these thresholds could leave gaps that require out-of-pocket expenses.

  "It's just better to have higher collision coverage anyway... umbrella insurance is so affordable anyway, you're likely fine keeping it as it is." [15:33]

• Shopping for Competitive Rates: Regularly comparing insurance providers can help ensure optimal rates and coverage. Adam shared his positive experience switching to USAA for better rates and additional benefits.

  "I ended up switching to USAA... it gave other benefits too in terms of discounts because it was a better homeowner's insurance coverage." [17:09]

Optimizing College Savings with 529 Plans Adam also discusses his strategy for funding his children's education, utilizing 529 plans with automatic monthly contributions. He calculates necessary savings by averaging costs between private and public universities, factoring in his employer's tuition benefits and anticipated investment growth.

"I just kind of took an average of that and obviously factored in room and board... these are going into growth investments, but I think the ones that are currently in... are getting about 6.5%." [19:14]

Evelyn emphasizes the flexibility and advantages of 529 plans, including potential rollover options to IRAs if funds are not fully utilized for education.

Evaluating Life Insurance Needs and Options As Adam considers his life insurance needs, he contemplates whether to switch to his employer's group term life policy or maintain his existing individual policies. The hosts advise assessing the benefits of group policies, such as lower premiums and potential convertibility to individual policies should he change jobs.

"Look into the details of your policy, because if it's less expensive than you're paying now... that might just be an extra cushion to have for less money." [25:34]

Elizabeth highlights a common rule of thumb for life insurance coverage—having around 10 times one's annual income—but also acknowledges that personal net worth and individual circumstances should inform the right coverage amount.

"At minimum, you would want enough to cover any outstanding debts or funeral expenses... a common rule of thumb is to have around 10 times your annual income in coverage." [22:45]

Final Recommendations and Action Steps Evelyn encourages Adam to:

• Compare Group vs. Individual Policies: Use NerdWallet’s life insurance comparison tool to evaluate different options.
• Assess Financial Stability of Providers: Ensure chosen insurers have strong financial health and favorable customer service records.
• Plan for Future Needs: Consider potential changes in financial circumstances, such as job stability and family growth, when selecting coverage amounts.

"Confirm that they have the types of policies that you want... NerdWallet has a pretty handy life insurance comparison tool that you can use to help shop around." [26:10]

Adam concludes feeling more confident about his insurance strategy, appreciating the guidance provided by the hosts.

"Having listened to that podcast, getting a few questions answered here makes me feel more comfortable about how to shop around and what I need." [30:50]

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Conclusion

This episode of NerdWallet's Smart Money Podcast equips listeners with a nuanced understanding of stagflation and practical strategies for optimizing life insurance coverage. By dissecting complex economic conditions and personal financial planning, Elizabeth Ayoola and Evelyn empower their audience to make informed decisions that enhance financial resilience and security.

For more financial insights and personalized advice, listeners are encouraged to submit their own money questions via voicemail or text to the Nerd Hotline at 901-730-6373, or email them at [e-mail]. Stay updated by following the Smart Money Podcast on platforms like Spotify, Apple Podcasts, and iHeartRadio.

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Notable Quotes:

• "Stagflation describes a rare set of circumstances in the economy when inflation and stagnation occur at the same time." — Taryn Phaneuf [01:08]
• "If wage increases are keeping pace with prices, consumers have a better chance of weathering the storm." — Taryn Phaneuf [02:14]
• "When both inflation and stagnation hit at once... those tools can work against each other." — Taryn Phaneuf [05:29]
• "Start by building or rebuilding your emergency fund... consider what major purchases or expenses you can postpone." — Evelyn [07:03]
• "It's just better to have higher collision coverage anyway... umbrella insurance is so affordable anyway, you're likely fine keeping it as it is." — Evelyn [15:33]

Transcript

[Elizabeth Ayola]

Life insurance. You've probably been told you need it, but do you? And if so, how do you know what kind to get? Today, we help a listener figure out whether umbrella insurance is enough. Welcome to NerdWallet Smart Money podcast where you send us your money questions and we answer them with the help of our genius nerds. I'm Elizabeth Ayola. This episode, we answer listeners question about life insurance. But first, our weekly Money news roundup where we break down the latest in the world of finance to help you be smarter with your money. And today we're asking what it means if the economy enters into something called stagflation. Our news colleague Ana Hochsky is here to explain more. Hey, Ana.

[Ana Hochsky]

Hey, Elizabeth. To learn more about stagflation and what's happening with inflation right now, we're we're joined today by my news colleague Taryn Phaneuf, who tracks all things prices and inflation. Welcome, Taryn.

[Taryn Phaneuf]

Hi, Ana. Thanks for having me.

[Ana Hochsky]

So first off, what is stagflation and how is it different from regular inflation?

[Taryn Phaneuf]

Stagflation describes a rare set of circumstances in the economy when inflation and stagnation occur at the same time. Inflation, which is something we're all pretty familiar with, is the rate at which prices increase a little. Inflation is seen as a sign of a normal, healthy economy, and the Federal Reserve targets a low stable inflation rate of around 2%. But when prices rise too fast, it makes it hard for consumers and businesses to keep up. Then there's stagnation. That describes an economy that is basically stalled. It's experiencing little, if any growth. In a situation like that, demand in the economy is very low. Businesses have pulled back and they might even be cutting staff. Consumers are spending less money because they're unemployed or they're worried about being unemployed. And when demand is low, prices tend to fall. So as you've probably realized, inflation and stagnation don't usually go hand in hand. With inflation, the economy is running hot, but with stagnation, it's slowing down. So when these two things happen simultaneously, it means that something is off.

[Ana Hochsky]

What are some of the signs that stagflation is happening in the economy?

[Taryn Phaneuf]

Economists look for some key signs. Are prices rising? Is productivity slowing or flat? Is unemployment going up? If all these things are happening, that's a recipe for stagflation. Wages factor in as well. If wage increases are keeping pace with prices, consumers have a better chance of weathering the storm. But it's unlikely that wages will increase if productivity slows and unemployment rises and.

[Ana Hochsky]

How does stagflation affect consumers?

[Taryn Phaneuf]

It's a double whammy. As prices rise across the board, consumers might tighten their budgets. The the antidote to that budget crunch would be things like pay raises. But if the economy is stagnating, those opportunities are less probable.

[Ana Hochsky]

One unofficial measure of stagflation is the misery index. Can you tell us about that?

[Taryn Phaneuf]

The misery index is calculated by adding together the unemployment and inflation rates. The higher it is, the more miserable the economy feels. The good news is that right now, the misery index is low. Not quite as low as the years preceding the pandemic, but nowhere near the recent highs during the pandemic and the Great Recession or historic peaks during the 1970s and 80s.

[Ana Hochsky]

Right. The 70s and 80s saw a prolonged period of stagflation. Now, how did that happen?

[Taryn Phaneuf]

In the 1970s and 80s, the US got hit with crisis after crisis. Government spending was up due to the Vietnam War and new domestic policies. Then there were multiple recessions and two different energy crises that spiked oil prices. As a result, inflation skyrocketed, economic growth stalled, and unemployment rose. Now, normally, unemployment costs cool inflation, but this time it didn't. When inflation reached more than 12% in November 1974, unemployment was at almost 7%. The jobless rate was similarly high six years later, when inflation hit almost 15% in March 1980. Eventually, the Fed raised interest rates dramatically to bring inflation down. And the experience fundamentally changed how monetary policy works in the US the new approach is likely one reason we've avoided stagflation more recently.

[Ana Hochsky]

So when was the most recent instance where stagflation was a concern, and what were the worrying conditions then?

[Taryn Phaneuf]

Stagflation became a major concern. In 2022. We were two years into the coronavirus pandemic, and demand was running hot. But the supply side of the economy was struggling due to a few factors. Mainly, it was supply chain issues. And then Russia invaded Ukraine, which pushed oil prices higher. The Fed took steps to combat inflation, but the effects were slow and people worried it wasn't working. The concern was that the economy was going to stall, but inflation wasn't. And that's the conundrum we call stagflation.

[Ana Hochsky]

What's the difference between the stagflation era in the 70s through the early 80s versus now?

[Taryn Phaneuf]

Right now, everyone is waiting to see what impact the Trump administration sweeping tariffs have. Tariffs have the potential to simultaneously raise prices and slow growth, depending on how severe they are and how long they're in place. One other major difference between then and now is that Oil prices actually dropped recently to the lowest levels we've seen since 2021. So at least the price situation isn't being exacerbated by high or rising transportation costs.

[Ana Hochsky]

How do you solve a problem like stagflation? What tools does the government have?

[Taryn Phaneuf]

It's tricky because like I said earlier, inflation and stagnation don't typically exist simultaneously. To fight inflation, the Fed raises interest rates, but to fight stagnation, it lowers them. Then during the pandemic and the Great Recession, we also saw more government spending to help keep the economy going. But when both inflation and stagnation hit at once, like in the 1970s, those tools can work against each other. For now, the Fed is being cautious, but may have to decide which side of the problem to focus on first.

[Ana Hochsky]

Okay, so right now, based on the key factors that economists usually assess, inflation, growth and unemployment. And is it safe to say that stagflation isn't happening right now?

[Taryn Phaneuf]

That's right. Inflation has cooled. April's Consumer Price Index, which measures inflation, shows 2.3% annually, or 2.8%, excluding food and energy, which are more volatile. That's heading toward the fed's target range of 2%. But there's still a little way to go. Growth was pretty strong over the last few years, but in the first quarter of 2025, gross domestic product data was negative. That was mainly due to an uptick in imports as businesses stocked up on foreign goods ahead of tariffs. Second quarter data should hopefully provide a clearer picture of where growth is trending. Unemployment has stayed relatively low and stable, but there are some signs of softening in the labor market, including a decline in job openings. So there are some warning bells going off right now for economists. Fed Chair Jerome Powell has even acknowledged that there is a heightened risk of stagflation ahead.

[Ana Hochsky]

Is there anything that people can do to prepare for stagflation if that is in fact where we're heading?

[Taryn Phaneuf]

Yes, definitely. Start by building or rebuilding your emergency fund. High yield savings accounts are still offering decent interest rates at the moment, so that could be a good place for protecting your savings from inflation. Second, the high interest rate environment makes it especially expensive to borrow money. So it's a good idea to reduce your debt if you're able. Prioritize high interest debt, like credit cards. Third, consider what major purchases or expenses you can postpone to maintain your cash cushion. Inflation can be a bit of a self fulfilling prophecy. If people go out and panic, buy goods because they're afraid prices are going to go up, they might still end up paying more because of the sudden spike in demand. Finally, stay open to job opportunities. The job market is full of uncertainty right now, but it's still wise to keep a lookout for ways to boost your earnings.

[Ana Hochsky]

Thanks for helping us out today, Taryn.

[Taryn Phaneuf]

Happy to do it.

[Elizabeth Ayola]

And thank you, Ana.

[Ana Hochsky]

Of course.

[Elizabeth Ayola]

Up next, we answer a listener's question about life insurance. But before we get into that, a reminder to send us your money questions. Do you want to know the smartest way to budget for your summer vacation? Or are you in the market for a new credit card but aren't sure how to find the one that's best for you? Leave us a voicemail or text us on the Nerd Hotline at 901-730-6373. That's 901730, nerd. Or you can also pop us an [e-mail] in a moment. This episode's Money question. Stay with us.

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[Evelyn]

We are back and answering your money questions to help you make smarter financial decisions. This episode, we're joined by Adam, a listener from Pennsylvania who has some questions about how much insurance they really need. Adam, welcome to Smart money.

[Adam]

Thanks for having me.

[Evelyn]

To start, I'd love to hear a little bit about your financial situation in general. So can you describe what Feels good about your money where you think you might have some room for improvement.

[Adam]

I've been working as a physician for about 20 years now. I feel pretty good about my overall savings. I actually met with a financial advisor for just a one year period for the first time in the last year, just to kind of check in and see what he thought about where I was. Overall, I think my retirement's good. I think with three kids, I certainly feel like I'm lacking a little bit in their college fund savings. It's hard to know obviously how much I need to have and how much to have set aside. But I know that was the biggest hole when we were examining kind of my overall financial picture. But, you know, I try to do the, you know, have the three to six months emergency fund. My retirement seems to be on track. And in the last couple of years I switched over to a high deductible savings plan just to get a little bit of extra benefit for tax deferment there too.

[Elizabeth Ayola]

And Adam, how old are your kids? I'm also a parent.

[Adam]

I have twin 13 year olds, boy, girl, twins, and a younger son who just turned 11.

[Elizabeth Ayola]

Okay, so some are a few years away from college, so.

[Adam]

Right. Definitely thinking about it. Yeah.

[Evelyn]

And are you married? Do you have a partner?

[Adam]

So I'm actually remarried this past Sunday I just came.

[Evelyn]

Oh, congratulations.

[Elizabeth Ayola]

Congrats.

[Adam]

Yeah. So obviously there was a bit of change in my financial situation. I was divorced four years ago and so that obviously kind of threw everything for a loop in terms of any things you have planned. It kind of changed things up. So I just recently got remarried and, you know, obviously that changes things again. And so it happened during my time with this financial advisor. So he said, you know, I threw him that information. Well, he said, okay, well, that changes things up a little bit.

[Evelyn]

What happened? Some of the biggest changes that you made as a result of, well, one, being a parent, which you have been for a number of years now, but also getting remarried. Those are some big changes.

[Adam]

Obviously, you know, for instance, I never carried life insurance or thought about it until I had kids. And then that was the impetus for getting life insurance. At the same time, started saving for college. But around the time of the divorce, I had to stop putting away money for college just because that was one of the places where I just, I needed a little bit of extra money. Obviously financial situations changed then. And then in the last year and a half or two years I was able to start recontributing to their 529 accounts. But yeah, I mean, it's sort of, you know, it was adjusting to, you know, child support payments and things like that, and living in two separate households and then just having one contributor to the mortgage. But my now wife moved in, gosh, a year and a half ago. And so obviously then we start splitting up mortgage and other bills and that changes the dynamics as well.

[Evelyn]

Maybe a little more room to breathe in your budget for sure.

[Adam]

Yeah, it definitely did. And, you know, we sort of sat down together when we really, you know, figured out how it was all going to play out. But it definitely gave more wiggle room for vacations and saving for college and things like that.

[Elizabeth Ayola]

Got you. So you wrote to us with some insurance questions. So can you tell us how this ties into maybe all of these life transitions you're having, if it does at all, and then what your questions are around that?

[Adam]

I mean, it actually came out of listening to your podcast episode about insurance in general. And while I was listening, I realized, hey, maybe I should check in with my insurance, because I like to do that every year or two. And it started when you were talking about things that you can adjust and collision insurance and being responsible for other people's bills if you were to get in an accident. And then you went on to talk about umbrella insurance, which I had, but I realized my net worth has gone up over the last 10, 15 years since I got it. I decided to go from 1 million to 2 million coverage. But then in doing so, I'm realizing, well, does that then cover any extra cost if my car insurance doesn't cover for, you know, for collision? My question that I posed to you over email was, would it make sense to just lower my collision coverage if I have a higher umbrella insurance coverage? Because any spillover will just go into my umbrella anyway.

[Evelyn]

So the answer is, you may not be able to, because to have umbrella insurance, your insurer requires you to have certain minimums coverage for your home and for your auto. And if, for example, you didn't have that minimum amount of coverage and you had an umbrella policy on top of that, and you had a gap between the two, you personally would have to pay out of pocket to cover that gap in coverage. So you need to have that minimum amount, and your insurer may well not even allow you to have less than that. So in general, it's just better to have higher collision coverage anyway, most likely depending on your car and your needs. And since umbrella insurance is so affordable anyway, you're likely fine keeping it as it is. And since your net worth has increased having that Higher amount is a smart idea too. But if you are concerned that the collision coverage that you have is maybe more expensive than you want, that's when you'd want to shop around at least once a year to compare rates on auto insurance specifically. So have you done that in the past or recently?

[Adam]

I have. Well, and actually I felt quite fortunate because my new wife is part of usa.

[Evelyn]

Oh great.

[Adam]

So I look at things like Consumer Reports and it's always one of the top rated ones. And then doing some research into their website and looking at their rates, etc. And consumer service, I realized it would be a great option. And so I switched over to them recently after having some comparisons and they actually have a good tool online too for if you want to make this one change, how would it affect your rates? And so I certainly played around a little bit with 100, 300,000 coverage versus 300 500. I did not know about that gap coverage and I guess potentially I don't know that it makes a huge difference, but I could check with them to see, hey, what's that minimum that I would have to keep?

[Evelyn]

I would be really surprised if they didn't have that anyway because it's in their interest too to provide an adequate policy for your needs. Did you shop around elsewhere when you were going over to USAA? At NerdWallet, we often recommend people get quotes from two or three places before making a decision. And we have a pretty handy comparison tool that can do some of this work for you. But that's a nice way to get a good feel for what you might be able to get from one company to the next because prices can vary pretty wildly for coverage.

[Adam]

Actually, six months prior I had shopped around and stayed with geico. I had looked at geico, I think I had looked at Amica just because of their good reputation and at least one other company. And GEICO was still the best deal for me. And I had had one fairly small claim with them. It had gone smoothly, so I figured, hey, I'll stay with them. But then realizing once I got married I had the option of usa. I didn't go back and compare USA to another few. I just compared it to GEICO to see what apples to apples, how it would pan out. And it was for car insurance. It was basically about the same, but it gave other benefits too in terms of discount because it was a better homeowner's insurance coverage. So yeah, so I ended up switching.

[Evelyn]

I would say it's worth comparing all of them side by side just to make sure that you have the best coverage for the best price. With insurance, especially car insurance, it typically doesn't pay to remain loyal to one company or another. And in fact, we've seen over time, some companies may well charge people more because they're not likely to shop around.

[Elizabeth Ayola]

I like that you are shopping around and doing your due diligence every year. And it sounds like ultimately you are trying to shave some dollars off of your insurance. Some. So I'm curious about where you would like to put those extra dollars and if you have anything in mind in terms of what you want to do with that money.

[Adam]

So I actually just sat down trying to sort of make calculations about college. And so I'm actually putting that into kind of raising again the amount that I'm putting month to month. So I have automatic withdrawal for the 529s. And I was actually playing catch up with my youngest because he didn't have as much in his. And so I was able to now increase those to all the same amount per month to try and catch up to what I'm guessing using some simple math about how much I'll need for them. And thankfully through my job, I actually get some tuition benefit as well. So then I sort of have to factor that in. But. But that's where the extra money is definitely going. I just re up that or increase that in the last two weeks.

[Elizabeth Ayola]

I know you also mentioned earlier that you're not sure exactly how much you should save for their college funds. So how did you come to that estimate? What are your thoughts?

[Adam]

Yeah, so I actually said, okay, in terms of top private universities, what's the cost? In terms of the lowest cost of state schools, what's the cost? And then I just kind of did pick the middle because I don't know, I figure kind of between the three of them, maybe it'll average out a little bit. Honestly, I don't really have a clue about where they're going to want to go or whatnot. So I just kind of took an average of that and obviously factored in room and board, but just found some numbers online that gave me estimates and then factored in the tuition benefit from my job and then kind of back calculated from what I'd saved to see what my gap was and then how much I needed to put in per month. Now, in that, I actually gave myself a cushion, I think, because I didn't account for the growth. And I thought, well, that'll give me that cushion if they do more than just the average cost, because Obviously these are going into growth investments, but I think the ones that are currently in, at least for my oldest two, are getting about 6.5% right now. They're fairly conservative.

[Evelyn]

Well, I'm glad to hear that you are saving through 529s because those are among the most flexible ways to save for a college education. You can use the money from the that for a trade school if your kids want to go that route. Or if they don't use all of the money in it, you can eventually roll it over to an IRA account so you can jumpstart your kids retirement savings, which is fantastic. But getting clear on how much you need to save might be a good idea. And if you want to talk with that financial planner again, they have tools that can model out how much you would need to save. They would factor things in like the growth rate that you would expect based on the investment in your portfolio as well as the average rate of tuition increases, because you need to factor in inflation too, to get a real understanding of your growth might be and how much you might need to invest. So I know Adam, you also had some questions around life insurance. So talk with us about that because since you are a dad, that's pretty important to have. So what are your thoughts? What kind of coverage do you have and where do you think you might need some help?

[Adam]

I started life insurance 13 years ago when the twins were born. And originally I had a policy with a company, two $1 million policies, one that expired at 55 and one that expired at 65. Each year I have open enrollment and through my job I started reconsidering the supplemental life insurance that they offer. And it looks like I might be able to get a slightly better deal, although it may be a bit of a wash, but if I switched over to their coverage. And so I started kind of crunching the numbers a little bit and see if it made sense. But then I also started wondering to myself, well, originally I had this first policy expiring at 55, but once I reach enough wealth that essentially has that amount factoring into account who my beneficiaries are, including my wife and then the three kids, instead of waiting to 55, do I just wait till I have enough that that would basically cover and feel like it would cover them for college and all the things to get them through kind of their early adult life. So right, those are the things I was considering. One, do I switch over to the supplemental life insurance through work, but I run the risk of, if I switch jobs, losing it and Knowing if another job has that available. And then two, hey, maybe before 55, I can actually drop this extra policy.

[Evelyn]

And just to be clear, you're talking about term policies.

[Adam]

Term policy, Correct.

[Evelyn]

Okay. And for folks listening who may not totally understand life insurance, there's term life insurance, and then permanent or sometimes called whole life insurance. Term expires at a certain time, as you might expect. So, Adam, it sounds like yours go to 55 and then 65, correct?

[Adam]

Yep.

[Evelyn]

Whereas a whole policy would extend throughout your whole life. And whole is often much more expensive, while term can get more expensive as you get older. And when you're thinking about how much you need from a life insurance policy, whether term or whole, at minimum, you would want enough to cover any outstanding debts or funeral expenses. You also want to think about how much income your family would need to maintain their quality of life without your income. So think about the general liquidity needs for your family expenses they might face, the mortgage you have to pay off, college funding needs that they might have. And a common rule of thumb is to have around 10 times your annual income in coverage. You mentioned that your net worth has grown to a place where you think some of your liquidity might cover these needs. Can I ask, what is your net worth?

[Adam]

Gosh, I recalculated it recently. I believe I am at. I guess I would just first tell you. My own personal net worth, I guess, would be at, I think close to 1.5, maybe more like 1.3 to 1.5 million.

[Evelyn]

Congrats. That's great. And remind me again exactly how much coverage you have across these policies.

[Adam]

So, 2 million total. 1 million per policy. Yeah.

[Evelyn]

While it might seem great to have this liquidity, that is that amount, having life insurance that is at your net worth or greater can actually preserve a lot of your liquidity for your family, too. So if something does happen, your family would have that amount of your net worth plus what they would get from these policies. You can bring a lot of flexibility to your family if something does happen. And you mentioned as well that you're considering moving over to your employer's group term life policy. And you mentioned that you were concerned about losing it if you do leave this job. I would encourage you to look into the details of this policy, because a lot of group term life insurance policies are convertible, which means that you can convert it to being your own policy if you leave within a certain amount of time. You have to make this decision. And typically when this happens, you actually don't need medical underwriting for this term Policy, which is a really nice benefit, but again, this often has to be done within 30 or 60 days of leaving the job. So look into the details of your policy, because if it's less expensive than you're paying now, and between that policy and the other one, you would exceed your current net worth and coverage. That might just be an extra cushion to have for less money.

[Adam]

Right. I didn't know about that.

[Evelyn]

And how did you land on the policies that you currently have? What was that process like?

[Adam]

So you asked me to recollect 13 years ago. I mean, I might have done some researching online about good places to get it, but honestly, I knew I wanted term. I had done a little bit of looking into whether or not I wanted term or whole life insurance. But yeah, I mean, in terms of choosing the company, I honestly don't think I was as well informed as I am now in terms of trying to figure out where to go as I do a little bit more research into that now.

[Evelyn]

Right. I mean, no one teaches you how to do these things. That's why we're here to help you do that. So as you're considering this new policy, it's a good time to look into the current policies that you have and the group term life insurance policy from your employer and look at a few different things from each company. You'll want to look at the financial strength of each company, as in, like, are they able to pay out if needed? And then you also want to look at what complaints there might be against the company. You can review this with the national association of Insurance Commissioners and also review what the complaints might be about. So that can give you a feel for whether they're difficult to file claims with or if they take a long time to pay out things that you wouldn't want your family to have to deal with after you're gone. Also, you want to confirm that they have the types of policies that you want. And I do want to mention that NerdWallet has a pretty handy life insurance comparison tool that you can use to help shop around and make sure that you do the policies that fit your needs. That's one way to make this all a little bit easier for you.

[Adam]

One concern that I thought about, though, if I were to switch policies, like, let's say I wanted to leave this company, I did some looking into, maybe they're not as stable as I. As I would hope. But how, now that I'm 13 years older than I was when I originally got it, how much do I need to worry about having Higher premiums. Obviously the premiums go up, but that was factored in when I first got it. But my premiums now stay the same every year. I wonder, am I going to lose out on a good deal that I got when I was younger? If I kind of drop them and.

[Elizabeth Ayola]

Switch to somebody else, they may be more expensive. I recently switched or got a new term policy and I'm older than I was when I had my original one. So I am paying a little bit more. But I will say depending on how much coverage you have, obviously it didn't put a dent in my budget paying an extra couple of dollars.

[Evelyn]

And again, the benefit of group term is that it's so much more affordable. So you can look into what you would be paying with a standalone policy from a different company versus the group term life insurance. I did some digging before this conversation and I found that for a $500,000 life insurance policy, I would pay around $11 each month for a group term life with what we have at NerdWallet. And then an estimate that I got from Policygenius was around $40 a month for the same coverage. You do have to weigh the question of whether you're going to leave your job and then you don't know what the increase might go to. Do you think you're going to stay at your current employer for a while or do you think you might hop around? How are you feeling about that?

[Adam]

That's the plan to stay with them for a while. I mean, they have. It's a stable job, they have great benefits, things are going well at the job. There's also the tuition benefit, which is huge. And so I'm sort of. I obviously eye that as well. But yeah, I plan on staying there for the long term.

[Evelyn]

So in that case it might just be a better bet. But there's always the gamble involved. You never know. And that's the risk of any financial decision. It really comes down to numbers and what helps you sleep at night too. Because insurance is all about helping you feel better about the unknowns and the risks of the world and doing it in a way that is affordable for you. Yeah, and I want to go back to your relationship with your wife. Have you talked about life insurance with her? Does she have her own policies?

[Adam]

She does not. And we had a discussion about that recently because I think that's also an option through. My job is to get insurance for my spouse. She does not have children of her own and obviously I lived several years with supporting my kids and without her additional income and so, I mean, I said to her, as far as I'm concerned, you didn't need to get it on my behalf. And so for now, we weren't going to get her life insurance just because of not having those dependents.

[Evelyn]

I understand that. Are you sharing your mortgage cost?

[Adam]

Yes.

[Evelyn]

Okay. That might be an area where having life insurance could really help you. You know, you never want to think about these things actually happening. But if the worst happens and your wife passes away, having a life insurance policy would make your day to day life likely a lot easier because you would be better able to cover something like your mortgage and for somewhere between 20 and $40 a month. That can go really far and just make everything much easier because think about how easily you spend $40 a month. But putting that money toward financial peace of mind is a really smart investment.

[Adam]

Okay. Yeah.

[Evelyn]

Well, Adam, how are you feeling about your insurance needs now? Do you have any other questions for us?

[Adam]

Good. No. I mean, I feel, yeah. Over the years I've just learned more and more. Obviously this is just adding to that. And having listened to that podcast, getting a few questions answered here makes me feel more comfortable about how to shop around and what I need. But no, I'm overall feeling pretty good about it.

[Evelyn]

Great. Well, I would say your main piece of homework, not that I'm telling you what to do with your money, since we don't do that here, would be to compare the group term life insurance policy you have from your employer and seeing whether it's convertible. Just in case you do end up deciding to leave this current job, you might want to take that policy with you.

[Adam]

Yep.

[Evelyn]

Well, keep us updated on what you decide to do. We always like hearing from our listeners after we chat.

[Adam]

We'll do. Yeah. Great.

[Evelyn]

Well, Adam, thank you for coming on and talking with us.

[Adam]

Thanks for having me.

[Evelyn]

That's all we have for this episode. Remember, listener, that we are here to answer your money questions. So turn to the nerds and call or text us your questions at 901-730-6373. That's 901-730 N E R D. You can also email us at podcastnerdwallet.com we'll be back next week to answer more of your money questions. Follow Smart Money on your favorite podcast app, including Spotify, Apple Podcasts and iHeartRadio to automatically download new episodes.

[Elizabeth Ayola]

And here's our brief disclaimer. We are not your financial or investment advisors. This nerdy information is provided for general educational and entertainment purposes and it may not apply to your specific circumstances. This episode was produced by Tess Viglin and Anna Helhotsky. Nick Karisimi mixed our audio. And a big thank you to NerdWallet's editors for all their help.

[Evelyn]

And with that said, until next time, turn to the nerds.