As the Coronavirus has spread in communities around the country, Americans are becoming increasingly concerned about the impact of the virus on jobs, the economy and their own financial security – but most importantly about the health and safety of their loved ones. Despite growing uncertainty, there is opportunity for Americans to look to the long term.
Cutting Through the Chaos
In an update to New York Life agents, New York Life Chief Investment Officer Tony Malloy said, “When panic rules the roost, markets can be governed more by the perceived health of the institutions operating in them than by a rational understanding of economic developments, [but] investors have some reason to temper their fears.”
Banks and other financial institutions are far better able to weather market shocks than in previous years, and New York Life is well-positioned. Americans are also becoming increasingly attuned to the importance of implementing protection-first financial planning strategies rooted in guaranteed products like life insurance and annuities.
In Search of Safety
Since early March, online searches for “life insurance and coronavirus” have risen more than 250%, according to Google Trends. Searches for “are annuities affected by the stock market” rose by more than 350%, suggesting that consumers are currently thinking about their finances.
Here are three reasons why guaranteed products1 – financial products that are not wholly tied to stock market performance – issued by financially sound insurers, make sense especially in volatile markets:
1. Life insurance gives you flexibility with the other parts of your financial plan.
Life insurance is the protection-first foundation of a solid plan, offering policy owners’ families peace of mind should the worst happen. Life insurance can also create confidence for policy holders to invest in the stock market, in a home, in a child’s education and much more because the financial risk created by those decisions is covered by the policy should something happen to the breadwinner.
There are different types of life insurance available, including term and permanent insurance, and they can each make sense at different points in life. It’s important to determine the right type of coverage for your unique needs, assess the financial stability of the insurance company and, when you’re ready, reach out to a financial professional to ensure what you’ve selected will help you achieve your financial goals.
2. Income annuities shine in volatile markets.
Unlike when saving for retirement, people face unique risks once they reach retirement, including the risk of depleting a nest egg too quickly (withdrawal risk), the risk that a nest egg won’t last the full length of retirement (longevity risk) and the risk that the timing of retirement account withdrawals will negatively impact the overall rate of investment returns (sequence of returns risk). Income annuities are a hedge against these risks by providing a paycheck for life. Like life insurance, there are different flavors of annuities. Some retirees want monthly annuity payments to cover basic expenses – offering freedom to spend other assets without worry – while others still want stock market exposure.
“While volatile markets can cause investors to panic, these conditions highlight the value of the guaranteed income that annuities provide,” said Dylan Huang, SVP and Head of Retail Annuities at New York Life. “At a time when interest rates are near zero, stock and bond investments are offering very little by way of income, and investors are looking for safe havens, income annuities can be an attractive option because they are not fully tied to the interest rate environment and monthly paychecks will not fluctuate with the market.”
3. Guaranteed products can protect against a fluctuating financial picture.
A financial portfolio often includes a variety of components: income, cash reserves from a savings account, stock market investments and real estate, to name a few. For many Americans, it likely also includes debt. All these components may fluctuate due to changes in individual circumstance and macro events, but guaranteed products, like life insurance and income annuities, don’t. Policy owners know how much their premiums will cost and how much their monthly annuity checks will be. This consistency enables consumers to be confident that their plans can weather the unexpected because they have the foundation of a protection-first approach.
Playing the Long Game
While current equity market conditions make guaranteed products seem more attractive, making the decision to purchase these policies isn’t about timing the market. Consumers should consider how these products fit into their overall financial strategies and how they can help achieve financial goals.
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1 Guarantees are based upon the claims paying ability of the issuer.