March 2, 2024


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5 financial weapons you can use to fight the COVID-19 economy

4 min read
5 financial weapons you can use to fight the COVID-19 economy

As the coronavirus threatens the health and wealth of Americans, consumers are fighting back by arming themselves with basic financial tools they may have overlooked before.

They’re rushing to sign up for products and plans that will protect their incomes, lifestyles and loved ones from the virus and the severe economic fallout that has tipped the U.S. into its first recession in over a decade.

Here are five financial tools that have become essential during the pandemic. If you haven’t included them in your money strategy, maybe it’s time to make room.

1. Life insurance

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The pandemic has raised awareness about life insurance.

The rising toll from COVID-19 is a reminder that life is fragile — which has led to surging sales of life insurance policies.

“We believe there are many people who have been putting off buying life insurance, and the pandemic is creating more of a sense of urgency around it,” says Abby Reddy, co-founder of the life insurance comparison site Quotacy.

Quotacy saw a 25% increase in people applying for policies in March and April, versus January and February. Also during March, Haven Life — part of MassMutual life insurance — saw a 42% surge in sales of term life insurance policies, good for a limited number of years.

Some consumers have been snapping up coverage not only because they’re concerned about getting sick and want to provide financial protection for their families but also because they’re worried rates will go up due to the coronavirus, Reddy says.

“While we aren’t seeing many increases in term life insurance pricing, it’s always a possibility,” she says.

2. Debt consolidation loans

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A debt consolidation sweeps your debt into one neat pile.

The pandemic’s soaring unemployment and business closings have left many Americans struggling to deal with debt.

The Federal Reserve Bank of New York reported that consumers were carrying a record $14.3 trillion in debt during the first three months of the year, before the economy got slammed hard by the virus.

Credit card companies have been providing relief by allowing customers to put their payments on hold or make smaller minimum payments, but typically the interest just keeps piling up.

One popular way to tame the costs from multiple credit card balances is by rolling them up into one lower-interest debt consolidation loan. Demand for these loans has been picking up in recent weeks, say researchers at LendingTree.

When you consolidate debt, you’ll have just one payment to make each month — and at a fixed interest rate as low as 3.99%, depending on your credit score.

Haven’t looked at your credit score in a while? Nowadays, it’s easy to check it for free.

3. Emergency savings

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Americans have been bolstering their emergency savings during the current crisis.

Too many Americans who found themselves out of work because of coronavirus-related business closures had no emergency savings to fall back on.

Surveys, including at least one conducted this year, have routinely shown that between 25% and 30% of U.S. consumers have no savings cushion for a financial emergency. They have nothing in the bank to cover a big medical bill, an out-of-the-blue car repair — or a layoff.

Experts recommend that consumers have enough saved to pay three to six months’ worth of expenses, just in case.

Obviously, it’s too late to start saving if your budget has been shattered by the pandemic. But Americans who’ve managed to stay in good financial shape have been saving like never before amid the crisis.

U.S. consumers in April saved a stunning 33% of their disposable income — what’s left after taxes and expenses — according to the Bureau of Economic Analysis. That was the highest personal savings rate since record keeping began in 1959.

If you’re ramping up your savings, don’t use a low-interest everyday savings account. Choose a high-yield savings account, or consider investing the money through a low-cost, easy-to-use robo-advisor.

4. Refinance mortgages

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Homeowners have been savings piles of money by refinancing.

The coronavirus has thrown millions of Americans out of work, put the financial markets through months of turmoil and thrust the U.S. economy into recession for the first time in over 10 years. But there’s been one strange economic benefit from the health and financial crisis.

Mortgage rates have plunged to the lowest levels ever recorded and have given homeowners a welcome way to trim their monthly budgets.

For much of this year, mortgage lenders have been receiving three and four times more applications for refinance mortgages than they did during the same weeks a year ago, data from the Mortgage Bankers Association shows.

Homeowners have been in a frenzy to refi and slash their house payments.

LendingTree said early in the spring that mortgages this year were saving borrowers about $60 per month for every $100,000 borrowed, compared to loans taken out during the early months of 2019.

5. Disability insurance

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Disability insurance would cover your bills if COVID-19 made you too sick to work.

The coronavirus has had working Americans asking themselves: How would I pay my bills if I got sick — really sick?

Disability insurance would replace your income if you ever couldn’t work due to an injury, or an illness like COVID-19.

The pandemic has boosted demand for disability policies, Jennifer Fitzgerald, CEO of the online insurance site Policygenius, said in a recent interview with consulting firm McKinsey & Co.

Some people have disability coverage through their jobs, but the benefits from those policies are often taxable. If you buy disability insurance on your own, the benefits are tax-free.

Getting a disability policy isn’t as complicated or as costly as you might think. The insurance is sold online now, you can get a quote within seconds and have your coverage in place in just 15 minutes.

Policies come with monthly benefits ranging from $500 on up to $20,000 — and cost as little as $9 a month.

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