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U.S. families are unprepared for an unexpected death: USAA

JJ Montanaro, Financial Planner, USAA Military Affairs Advocacy Group, joins Yahoo Finance Live to discuss USAA Life Insurance’s survey findings on the gap in end of life planning.

Video Transcript

ALEXIS CHRISTFOROUS: End of life planning, it's never a popular conversation to have with loved ones. But a new survey from USAA Life Insurance shows that it is a conversation that we all need to have. Joining me now is JJ Montanaro, financial planner for USAA Military Affairs Advocacy Group. And JJ, I took a look at this survey. And it seems like there is this unpreparedness gap when it comes to who can handle an unexpected death in the family financially speaking. Talk to us about that preparedness gap.

JJ MONTANARO: Thanks, Alexis. And I hate to continue this kind of a grim news as we move forward here. I've been watching for the last few minutes. So I've got a nugget of good information that'll make us smile at the end. But the reality here is it's kind of akin to folks, if you asked a group, hey, are you better than an average driver? And you're in a big room, 80% of people probably raise their hand and say, yes. I'm better off than average. And that's a similar gap that we're seeing with with our survey, is that around 80% of folks are saying, oh yeah. We're financially secure if there was an unexpected death.

On the other hand, when you look at the military group that answered the survey, 27% of them and 40% of civilians said, we wouldn't be able to meet our basic expenses for a year. So we'd be out of money after a year or having to really adjust our lifestyle. And so that's the gap we're talking about. Hey, I feel good about things. But the reality is maybe I'm not really in the best position I should be in.

ALEXIS CHRISTFOROUS: Talk to me about how life insurance sort of fits into the retirement discussion and the end of life planning discussion.

JJ MONTANARO: Sure. I mean, when you talk about retirement, life insurance is probably not the thing you think about. But the reality is is when we talk about retirement in the early years when you're accumulating life insurance, if something happens to the primary wage earner, guess what? Those 401(k) contributions aren't being made, the savings, the compound earnings aren't being made. And so life insurance allows those that are accumulating for retirement to fill that gap. And of course in the retirement income phase, we're talking about replacing benefits, even something like social security goes away.

That can have a significant impact on someone's financial wellness. And so life insurance can be there to fill that gap. And of course, there's things like final expenses, where life insurance plays a critical role.

ALEXIS CHRISTFOROUS: We've actually seen that demand for life insurance has actually risen quite a bit during the pandemic, even amongst lower income households. Talk to me about the perceived barriers, I guess, that people might have about life insurance. Do most people think, you know what? That's just too expensive for me, and I can't afford to pay into that monthly or quarterly right now?

JJ MONTANARO: Yeah. I think when you look at the primary driver of the decision people are making, our survey validated that it's all about the cost. What does it cost? But the upside of that is, and I would hope people take away from this, is that the cost probably is not as much as you think. So when we talk about the military and the group life insurance that currently serving folks have, it's $2,500 for $400,000 of coverage. Well, that's not a unicorn. I mean, if you're in pretty good health, that's something that's probably available for a lot wider population.

So my call to action there is, don't overestimate the cost of it. And when you look at the numbers, when you lay out what your goals are with life insurance, you could be talking about hundreds of thousands of requirement there. But it may not cost as much as you think to fill that gap.

ALEXIS CHRISTFOROUS: And what's your take on employer provided life insurance coverage? I know many companies actually mandate that you put a little something aside. Or they do for you on behalf of you for a little bit of life insurance. But should people be taking advantage of that in a bigger way with their employer?

JJ MONTANARO: Yeah, definitely that's something to take advantage of. I think if you look at what's happened over the last year and a half, it's also something to be cautious about. Do you want all your life insurance tied to that employer? As we see people move jobs either voluntarily or involuntarily, one thing they need to be prepared for is to be able to transition those benefits from one job to another. And so that could mean having your own life insurance that isn't tied to an employer. So that's a great point, Alexis.

ALEXIS CHRISTFOROUS: And also I noticed in some of your statistics, I was kind of surprised to see that nearly 30% of people had purchased cryptocurrency as part of their retirement plan. It's a little volatile when you think about it. What's your take on that? And did they say why they're doing that?

JJ MONTANARO: I was doing the singles. I want to hit some singles. So when you look back, I think there's some silver bullet there. We're all looking for the silver bullet that's going to get us there in one fell swoop. And I think the message there is that, hey, do those things that are fundamental and sound. Contribute to the 401(k). Get that matching contribution from your employer. Make that Roth IRA contribution. And if you do something like cryptocurrency, maybe it's on the periphery, one of those things that is not-- you're not going to rise or sink with what you do with cryptocurrency as opposed to those other fundamental things that we talked about.

ALEXIS CHRISTFOROUS: But it is becoming more and more mainstream when you hear that folks are having cryptocurrency be part of the retirement planning. All right. JJ Montanaro, financial planner at USAA Military Affairs Advocacy Group. Thanks for stopping by and sharing those highlights with us.