Personal finance in the time of COVID-19
Frequently Asked Questions
The coronavirus outbreak and the changes it’s brought in how we do work and life at home has brought countless questions. While we can’t settle all your uncertainty, North Star is here to help as a steady resource for all your financial questions in the midst of our current crisis.
Should I stop or decrease contributions into my 401(k)?
You should only consider reducing your contribution if you need that money for groceries, rent or other essentials for your family. This is the time to consider increasing contributions as prices have gone down because of COVID-19. Assuming the social distancing will end at some point, share prices should recover as they often do with recessions and market corrections.
If I am laid off from my job, should I cash out my 401(k)? What would be the penalties if I do?
It would be best to consult with a financial professional for the best options given your personal situation. One option would be to roll the funds to an IRA and take out only the portion you need at the time of the withdrawal. The full amount of any withdrawal would be taxable—if it’s pre-tax and not Roth 401(k)—but the 10% premature distribution penalty has been waived for 2020.
Your other options are to cash it out, leave it where it’s currently at or when you do obtain a new job, roll it over to the new employer plan.
If I need funds during this time should I consider taking a loan on my 401(k) or other retirement accounts?
A loan against your funds could be a solution versus taking a withdrawal since the funds wouldn’t be taxed and you would pay them back. If other funds are available other than your 401(k), there may be better options; but once again, a financial professional would be best to give that advice given your personal situation.
Should I cancel or stop paying my life insurance or disability during this time to increase monthly cash flow and then get a new policy later?
It is not recommended to cancel your policy. Getting a new one may not be easy if your health has changed, pricing will likely be higher and you may lose any discounts you might have locked in from your original purchase. If cash flow is a challenge, you have alternatives for helping with premium payments. As always, it’s best to discuss alternatives with your financial representative.
Before you cancel, consider two changes being made due to COVID-19:
- Many carriers are offering extensions for premiums. Premiums are still going to be due, but your carrier likely won’t lapse your policy if premiums don’t get paid for a limited period. If after the grace period you still cannot pay your premiums and catch back up, then you and your financial representative can review your options at that time.
- You could pay in advance by changing your premium mode. This strategy buys you time until the next premium due date after the next quarter and could extend your grace period even further.
If I get the COVID-19 virus, am I covered under my disability policy?
Yes, if you have a confirmed case of the COVID-19 virus claims will be paid out like any other sickness or illness after the elimination period and meeting the definitions of disability or partial disability in your policy. However, being quarantined, furloughed or having hours cut is not in itself a disability
Related: Will Disability Insurance Support You in a Coronavirus Quarantine?
Many of your financial questions at this time can’t be answered in one article online. Your specific concerns are based on your situation, your family, your financial priorities, and your experience during these unprecedented times.
Working one-on-one with a financial professional is the best way to get the financial recommendations you need when life gets chaotic and decisions need to be made. If you haven’t connected with a representative yet, we encourage you to find one who fits your family’s financial interests and who is willing to meet virtually during this time.