Along with the passing of a loved one comes the countless arduous and difficult decisions that one must make.
Of course, “what do I do with this sudden and large amount of money” may not be the first thing that pops to mind. But to most people, this could be a real and very overwhelming concern.
As the beneficiary, you may be wondering what to do with this money?
Do you pay off debts? Start investing? Prepare for your child’s education fund? Life insurance payout provides you with the financial freedom the policyholder had intended you to have.
Don’t Be Rash When Making Decisions
One may feel like they have to make a decision immediately but truth is, one doesn’t. Often, the first thing that comes to mind is to use the sum of money to pay back the loans or any other practical expenses.
However, what you should consider doing is to continue your day to day activities.
Keep paying towards your housing loans. Maintain your monthly utility bills payment. Stay with friends or family members should you wish to. Take your time to grieve. You won’t want to rush into any decisions while you are distraught and grieving.
Take Care Of Immediate Needs First
The reason why the insurance policyholder purchase the policy in the first place is to ensure that their family members would be able to continue maintaining a comfortable standard of living in the event where they are no longer around. It is an act of selflessness, and one that helps to prevent a family from being further disrupted.
It is likely that the beneficiary is dependent on the policyholder’s income and with the passing of the policyholder, that income stream stops. Before you consider paying off all your debts, you should focus on your family’s day to day needs.
Keep your children in the same school. Continue staying at your current house to maintain normalcy. Continue paying for your phone bills, utilities, groceries and any other monthly expenses.
You should consider utilising your life insurance payout for debt repayments and any form of investments only after you have assess your immediate needs.
Don’t Be Afraid To Ask For Help
When tragedy strikes, you’ll be humbled by the outpouring offers for support. Enlisting the help of siblings, children and other relatives can relieve an immeasurable burden to make decisions. This might also be the right time to speak to a financial advisor, who can provide you with professional advice on how to strategically utilise the insurance payout in both the short and long term.
If an opportunity arise whereby you could work with professionals or financially savvy individuals who could help you make informed decisions, consider taking it up. Once again, give yourself time and space to vet the right person before making any major decisions.
Paying Off Debts
Once you are ready to start utilising the insurance payouts, you can consider paying off your debts, starting with the ones that have higher interest rates.
If you have high interest debts like credit card bills, you should consider closing these accounts to avoid going deeper into debt. With lower interest rate debts, such as a mortgage, assess the total balance owed and what the monthly payment is. If the rest of the mortgage takes up the full amount of the death benefit, it becomes a more complicated decision. You’ll want to consider the costs of staying in the house long-term and if it makes sense for your family and your future financial situation.
Paying Off The Mortgage
One of the biggest decisions a widow or widower might need to make is whether to stay in their current house. The answer isn’t a simple, “Is the insurance payout sufficient to cover the mortgage? Then yes.” One needs to take into consideration the upkeep, utilities, and other expenses which could be expensive for one person to take on. Over time, some may think downsizing their house is the better option.
Before deciding to use the full amount of a death benefit towards paying off a mortgage, consider sticking with making the usual monthly payments for the time being. Should you wish to sell it in a year or so when you’re feeling whole again, you’ll be happy you still have a financial cushion from the life insurance policy to get a new home.
Investing The Life Insurance Payment
If you no longer need the life insurance payout to replace income and have paid off your debts, you may want to consider investing the payout so that it has the potential to grow in value.
You can place the funds in an investment account that you already have, or open one. Bear in mind that investing involves risk, and past performance doesn’t guarantee future results.
If you’re wary of the stock market, there are other ways to help grow your cash. As always, anytime you’re considering investing your money, do your research or consult a trusted financial professional.
There is no harm in spending a little money on something that would make your family happy and honor the policyholder’s memory. Like with getting a pay raise, you should also enjoy a little bit of the windfall too.
Your loved one named you as the beneficiary to the policy for a reason. They wanted your financial future to be as secure as possible and to ease the burden of loss. It’s also safe to say that they wanted you to be happy.
You shouldn’t find yourself paralyzed with fear because you don’t know what to do with a life insurance payout. By taking the time to cope with the loss, creating a game plan, and seeking the advice of qualified professionals, you can ensure that the life insurance policy your loved one purchased is put to good use.