Life Insurance as an Investment? We Fact-Check the TikTok Trend
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What is the main focus of today's episode?
Welcome to NerdWallet's Smart Money Podcast. I'm Tess Vigeland in for Sean Piles.
And I'm Anna Helhofsky.
And this is our weekly money news roundup, where we break down the latest in the world of finance to help you be smarter with your money. We'll go deep into a single topic, then leave you with the latest money headlines. But Anna, before we get started, I want listeners to know that we are not ignoring the elephant and donkey in the room today.
That's right. There was a big election last night and we may or may not have final results, but you won't hear them here because we're taping this on the Tuesday morning of Election Day.
Yes. So we are indeed aware of a big news item in the headlines today. We're not ignoring it. We just didn't have all the information at the time of taping. I would imagine we'll talk about it on next week's episode. In the meantime, in case you missed it, we actually ran a four episode special series last month on how the presidential election could affect your finances. So we'll put links to those episodes in today's show notes in case you're feeling anxious about the results and you can get an idea for what to expect or visit nerdwallet.com slash podcast and you can find the episodes near the top of the page. With that, today we're talking about influencers and the sometimes not so great advice they give.
Why should I be cautious of financial advice from TikTok influencers?
Yeah, this falls under the category of don't believe everything you read, watch, or hear just because someone has a big following.
Speaking of a big following, there are quite a few influencers who are so successful at what they do, they're able to go full time with that gig. A study published last year that was cited in a recent Wall Street Journal piece claims there are 27 million paid content creators in the U.S. Among those creators, 44% are working full time, and that figures out to about 12 million full time social media influencers. That's just bananas.
Yeah, Tess, that's too many influencers if you ask me. Now, as we all know, an influencer's job is to entertain and inform, even if the information isn't all that accurate. Finance TikTok, more commonly known as Fintalk, has some particularly egregious advice from influencers.
Well, we're going to hone in on one piece of FinTalk advice that's been making the rounds on TikTok for a while now. Some influencers claim it's better to invest in life insurance than a 401k for retirement.
Hmm. Sounds a little fishy to me, Tess, but let's ask someone with a little more expertise in that area. Fortunately, we have Alana Benson, an investing writer here at NerdWallet, to talk us through it. Alana, welcome back to Smart Money. Thanks for having me. So first off, set the record straight for us. Is life insurance considered an investment? And how does it differ from a 401k?
So despite what some TikTok influencers might have you think, life insurance is not an investment, full stop. It's pretty simple. Life insurance is a policy where you pay premium so that if you pass away, the company pays your beneficiaries. There are lots of different kinds of life insurance, but most often the folks on TikTok are talking about permanent life insurance, which includes life whole life insurance and universal life insurance. A 401k, on the other hand, is an investment account offered by your employer. You add money to it and often your employer will match some of the money you're putting in and it can be invested in the stock market. And then when you are retired, you can use that money to support yourself.
Is life insurance truly an investment?
So you have to think of life insurance as a completely different product than an investment account. You know, life insurance is not inherently bad. It just serves a different purpose.
So Alana, what is the actual advice going around on TikTok? And is it coming from influencers who are also financial experts?
The actual advice that people are pitching and people who are most definitely not financial advisors is that you should invest in life insurance instead of a 401k or an IRA. And they make some claims that it is more flexible in terms of investment selection and that will make you more money over time. But those claims are almost entirely false.
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Chapters
7 chapters
1
What is the main focus of today's episode?
0:06–1:24
2
Why should I be cautious of financial advice from TikTok influencers?
1:24–3:33
3
Is life insurance truly an investment?
3:33–4:10
4
What are the key differences between life insurance and a 401(k)?
4:10–5:49
5
What misleading claims are influencers making about life insurance?
5:49–8:27
6
How do fees impact life insurance policies compared to 401(k)s?
8:27–10:10
7
Why might influencers promote life insurance over traditional retirement accounts?
10:10–11:05
Speakers
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