Should you use your stimulus check to buy life insurance?

Let’s say that you have a stimulus check that recently came in due to the CARES Act as a result of the COVID-19 crisis. Let’s say that you set up a life insurance policy built favoring cash value such as a modernized whole life policy which is maximized for cash accumulation rather than purely for the death benefit. Once the policy is established, you can take your stimulus funds and pay premiums into the cash value using a paid-up additions rider, which keeps your money liquid and available for you to use for emergencies and for opportunities.

If the policy itself is designed correctly, then even if you need that money for an emergency, you can borrow against the cash value in the policy and it will continue to grow as if you had not borrowed against the money. This is a chance for uninterrupted compound growth on your cash, which is a pretty rare thing in the financial universe.

Anywhere else I put my stimulus check is going to have some problems. Here’s what I mean: If I put my stimulus check into a savings account, it’s pretty accessible to me and I might end up spending it on things I don’t need. Also, as soon as I spend that money out of my savings, it’s gone. Not only is the money gone, but also gone is all of the interest I could have earned on that money had I kept it locked away and saved or invested it instead. In the financial world we call that opportunity cost. If I put my stimulus check toward paying off my debt (e.g. student loans, mortgage, etc), and I run into hard times next month, it will be very difficult for me to get money out again. Banks typically don’t use money while you’re paying them back. If I put my stimulus check toward investments like Wall Street’s products, I have no clue what that money will do for me tomorrow, much less 20+ years from now, which is fine if you have no other plans for that money or don’t need to see it again. As we like to say, only invest money you can afford to lose, save money you cannot afford to lose.

As a 25 year veteran of selling life insurance, it’s hard for me to say no to someone who wants to purchase life insurance but, at the end of the day, I have to look at myself in the mirror. Therefore, I would have to look at whether or not the prospective client will be able to keep up with the premiums during and after these difficult times.

A person holding a stimulus check may or may not have a job to go back to or have prospects for future employment. They may have depleted savings and would need the funds from the stimulus check to pay for rent, food, etc. In cases such as these, I would recommend against using those funds to purchase a life insurance policy.”

A stimulus check is a one-time payment for most. Insurance premiums can last many years. You must be prepared to make your payments now – and in the future. Otherwise, your policy would lapse and your insurance would be very temporary.

Now if you have the means to pay going forward – and your stimulus check is not reserved for other essential purchases – then yes, it could be a good start toward life insurance planning. We’d be taking it on a case by case basis here.

Your stimulus check should be used to provide for your daily living expenses. I would not suggest buying life insurance coverage with this for two reasons. First, you’ll likely be committing to a monthly bill, not a one time expense. You should consider what type of life insurance will meet your needs and fit into your budget, regardless of your stimulus check.

If you feel you need life insurance, make sure the plan does not have exclusions, restrictions, or limitations on new applications for anything related to respiratory infections, viral infections, pandemics or outbreaks. Talk to a trusted agent about your concerns and specific needs before purchasing a policy to ensure you find a plan that’s right for you.

Next, if you are having problems paying your bills, speak with your creditors. Many will work with you, often accepting less than full payment or giving you additional time to pay. Of course, when the accommodation ends you will still owe the full amount and should promptly begin making payments again. As long as you are complying with any arrangement you have worked out with your creditor, your score should not be adversely affected.

Absolutely! Yes, you should use your stimulus check to purchase life insurance — and yes, the coronavirus is covered by life insurance. Life insurance is just as important as catching up on bills or buying food right now. You see, despite what you may have heard or read, life insurance is not a luxury item.

The truth is life insurance is about having a sound financial plan in place to take care of your loved ones, first and foremost, and debts when you die. Think final expenses like the whopping $7,000-$12,000 cost of a funeral. Since that pretty much applies to everyone on this planet, then that makes us all candidates for life insurance. So, if you have anyone that depends on you financially — think kids, a spouse, a special needs child or adult, parents, etc. — then you’re looking at the number one reason to get life insurance, especially right now. In uncertain times like this, giving yourself peace of mind and taking care of your loved ones is about more than just wearing a face mask and getting plenty of vitamin C & D every day. It’s also about financial security, which should hit home if you’ve experienced job loss caused by the pandemic.

If you do not have insurance, getting your stimulus check is the perfect time to buy one. The coronavirus pandemic showed us how frail life is, and we don’t know if, or when, we will be a victim of this disease. If you want peace of mind and stability during these uncertain times purchasing life insurance makes sense. While a $1,200 check from the government won’t go far, $500,000 to $1,000,000 in life insurance will be a crucial financial safety net for your family should you die unexpectedly.

There are now life insurance policies that offer living benefits that you can access while you are still alive if significant medical conditions arise in the future. It is wise to purchase a policy that you can use while living instead of a policy that will only pay when you die. Think about life insurance as a long-term emergency fund that your loved ones can use when you pass away. It will help them replace income, pay off debt, put children through college, and pay for your funeral and final expenses. And if there’s anything left over, they can use it however they see fit…and don’t forget those living benefits!

As we see happening currently, the unexpected can happen. With a little financial preparation, and a small expenditure now out of your stimulus check—most people don’t realize how inexpensive a term life insurance policy is—you can know that if something did happen to you, your family would not be left with another, and likely worse, financial burden that can negatively impact every aspect of their lives for years to come.

In order to answer this question, you have to ask yourself a few more. What’s changed? If you’ve been putting off purchasing life insurance and COVID-19 has inspired you to get your financial house in order, then using your stimulus check to get started is smart. On the other hand, if you don’t need additional life insurance (or don’t need any), then your stimulus check is better allocated elsewhere.

What do your finances look like? If you’re struggling to put food on the table, then using your stimulus check for anything but survival is reckless. That being said, if your personal balance sheet is in decent shape, then using some of your stimulus money to shore up your financial plan makes sense.

What do you think the coming years will look like? If you purchase insurance using money that you don’t normally have, keep in mind that those premiums will be due in the future as well. Insurance carriers price in lapses (the policy falling off of the books due to non-payment) and those policies that don’t renew often help the insurance company in the long run. Buying a policy that you won’t be able to afford a few years down the road isn’t normally going to help you. Make sure that if you’re using your stimulus check to purchase life insurance that you can still afford it down the road.

Lots of people – especially parents – need life insurance and tend to put it off, so if your stimulus check is a convenient excuse for you to finally apply for a policy, I say go for it! That said, life insurance is intended to be a long-term form of financial protection. If you get term life insurance, that means you’ll be covered for a set period of time, such as 15 or 20 years, and you’ll need to keep up with your monthly premiums throughout that time to keep your policy active or “in force.” So, even with a stimulus check in hand, it’s important to make sure that you go with a policy that you can genuinely afford on your budget. Because years from now, when that stimulus is no longer, you’ll want to be sure you can continue to keep up with your monthly premiums.