What to Do with Life Insurance Money

what to do with life insurance money text overlaying image of a heart on a pile of money After the passing of a loved one, the proceeds from a life insurance policy can help remove a portion of your stress. Allowing you to focus on your emotional needs without worrying about money. However, a sudden large sum of money can also bring up some hard choices. Before deciding what to do with it, you should first look at your assets and plans thoroughly. Do an overview of your financial situation to help decide what makes sense for you.


Taking a little time to really consider everything will not only help you decide how to use the money. But also, how you should collect it. You can generally receive a death benefit payout in a lump sum. Or in regular installments, either monthly, quarterly, annually, semi-annually etc. Below we’ll take a look at some of your options for using the payout to give you an idea of what you should be considering while making your decision.

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How Life Insurance Payouts Work

For many people, receiving a death benefit for the first time can be overwhelming, especially when you don’t know how the process works. Don’t worry, everything is fairly simple. First you have to notify the life insurance company that your loved one has passed away. Then provide appropriate documentation, such as a death certificate. Once the claims process starts, you will typically receive payment within two weeks or less. Depending on how you choose to collect the payout.


The only time this would take longer is if there was an issue surrounding your loved one’s passing. Such as they committed suicide or gave the insurance company false information on their application. Both of these instances would render the payout void, which means that you won’t receive payout at all. However, let’s assume everything goes smoothly. When you receive the cash, it is tax-free which is a great benefit to you. Now, how do you use this money? There are no rules here, you are free to do whatever you want with this money. Below we’ve detailed some ideas on how you can use your payout.

Pay Off Debt

If you’re buried in debt, like many Americans are, it may make sense to take the lump-sum option and pay off any high-interest credit card debt or student loans. This not only eliminates your debt but frees up your income for monthly expenses. Even if you were to invest the money, if you have credit card debt, it’s unlikely that investment will pay off more than the interest you’re being charged on credit card or student loan debts. Having that lump-sum in your pocket may sound nice. But think about the extra money in your account each paycheck that isn’t going towards trying to pay down a debt. Overall it’s a smarter financial move that will actually save you more money than if you were to just start spending the money.

Build An Emergency Fund

A life insurance payout is a great opportunity to start or add to an emergency fund. A portion of your life insurance benefit can be placed in an interest earning account. Such as a savings or money market account. This money can later be used to pay for any future emergencies that could cost you a lot of money. Savings accounts ensure that unexpected expenses such as medical emergencies, home repairs, or temporary unemployment won’t derail your savings plan. Or worse, put your family heavily into a debt. Most financial experts recommend that you should have at least 3 to 6 months’ worth of living expenses in your savings. And if you’re self-employed or have unstable income, you should be saving twice that. 

Consider Buying An Annuity

It’s common for beneficiaries to need the life insurance payout to help cover their monthly living expenses. This is especially true for young families who are trying to replace the breadwinner’s income, or for seniors whose spouse passed away and they now no longer have a second income or social security check. In these situations, it may make sense to use your life insurance policy death benefit to buy an annuity. Which is a type of account that will pay out a set amount of money over time, like monthly or yearly, they can even be set to continue for your entire life.


Some life insurance plans will even offer an annuity as a payout option for the death benefit. There are several types of annuities all designed to help reach specific goals. Some annuities are designed to provide an immediate stable stream of guaranteed income. Others are designed to help you save for long-term plans like retirement. However, annuities are complicated, so, if this sounds like an option for you, make sure you read any and all materials that come with whichever plan you’re considering. It may also be helpful to speak to a financial expert to make sure there are no hiccups or misinformation.

Collect Installments

If the idea of receiving regular payments over time sounds appealing, but an annuity seems too complicated, there is a similar and simpler option. We mentioned earlier you have the option to receive your payout in installments from the life insurance company. Installment payments can provide a similar income guarantee without all the extra complexity. For example, the life insurance company may pay out 10% of the total death benefit every year over a 10 year period. The portion of the death benefit that is still in the account will typically continue to earn interest so it’ll also make more money over the years. However, keep in mind that while the death benefit itself may not be taxable, any interest you earn after opting for an installment payout may be taxable.


If you don’t have any pressing needs to use the money towards, like if your emergency fund is all set, bills are paid, debt is handled, it may be a good idea to take all or some of the payout and invest it. You can invest it in a combination of stocks and bonds for potential financial growth. If you’re not fully funding your 401K and IRA, for example, life insurance payouts can supplement your savings so you can pay more into your 401k. A 40-year-old who invests $100,000 in a taxable brokerage account and never invests again could accumulate $424,000 after 25 years, assuming a hypothetical annual return of 7%.

Build A College Fund

We all know, in today’s world, college is expensive with a capital E. Especially if you have more than one child. You can use a portion or all of the death benefit towards your children’s college fund with a 529 college savings account. Earnings on 529 accounts are tax-deferred, and withdrawals are tax-free as long as they are used for qualifying higher education expenses. An initial investment of $50,000 in a 539 college savings plan could potentially double within 12 years, assuming an annual growth rate of 6%. Considering death benefits can be very large. This may be a great way to make sure your kid’s education is taken care of.


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A Combination 

For some people, if the death benefit is big enough, a combined approach could be a great option. You won’t have to choose one approach and go all in. For example you could use a portion of the death benefit to buy an annuity that creates a guaranteed monthly income stream for 12-15 years. At the same time you can take another portion of the payout and invest it in the stock market to let it start making you money.


Theoretically, this strategy would allow you to cover your immediate living expenses. While allowing the invested portion enough time to generate potential returns. If your portfolio generates a reasonable amount over the next 12-15 years then it could potentially generate income for another decade. Keep in mind though, that any option with investments means you have to accept a certain level of risk. There’s no guarantee the investments will do well. 

Life Insurance Made EZ

Losing a loved one is difficult, and you may not know what to do with the money you will receive while you are in mourning. However, this money will provide you with the assurance that you can continue to provide for your family. Working with an agent who specializes in life insurance is the best way to find the right policy for you and your specific needs if you are looking for a policy for yourself and are unsure which policy is best.


Below is a list of the best life insurance companies in the country; each offers hassle-free service and the most affordable rates. Always check multiple sites to ensure that you have negotiating power and are aware of the benefits of each company. Ensure that a difficult time is not exacerbated by a financial burden by comparing life insurance rates today. You can always call us at 877-670-3560 if you have more questions or wish to speak with an agent directly.

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Average Life Insurance Payout Time

If you are wondering how long it takes for a life insurance company to pay out life insurance benefits, you should know that there are a variety of factors that determine this. How long it takes to receive the payout depends on how the policy is structured, and how long it takes the insurer to conduct any investigations they need to complete, because these investigations can delay a payout. But for the most part, the average life insurance payout time is not as long as you might think it is.

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Life insurance companies typically pay benefits anywhere from 30 to 60 days.

The Typical Life Insurance Payout Time

The typical amount of time it takes for a life insurance company to pay benefits ranges from 30 to 60 days, but it can take as little as 2 weeks if the claim is straightforward and cleared quickly by the insurance company.

Factors That Go Into Determining Life Insurance Payout Period

If you are listed as the beneficiary of a loved one’s life insurance policy, after they pass away you will need to gather all of the necessary documents, such as a copy of the death certificate, in order to submit a claim. Most states give life insurance companies up to 30 days to review a claim and make a decision. Different factors can prolong the process, though, such as if there are multiple beneficiaries instead of just one beneficiary. 

In addition, if you choose to take the life insurance payment as an annuity, instead of receiving a lump sum,  you could receive your first payment as soon as 10 days after the claim is processed. 

Other factors that can result in a longer wait time for a life insurance payout include:

  • The length of time after death that the claim is filed.
  • If you have all the documentation required for the claim.
  • If a claim form that you filled out is not correct or incomplete,  you will have to resubmit the form, with the correct information, which can prolong the claim process.
  • If the policyholder died by suicide within two years of purchasing the policy, this could delay the payout up to a year. If the policyholder died by suicide within the contestability period, you could be denied the life insurance payout completely. crime scene
  • If the policyholder was murdered, the payout will be withheld until the investigation by authorities clears all beneficiaries of the crime.

Get Help

If you want to make sure that your family is completely taken care of when you are gone, you need to find the right life insurance policy for you AND know the rules and clauses of the specific policy you choose to go with.

The best way to find the right policy for you is by working with a licensed agent from a top-rated insurance company. They can help you find a policy with affordable rates, and give you ideas for how to cut costs. We have listed some companies to work with that will be able to find you the most coverage for the least amount of money. Always check multiple sites to make sure you have bargaining power and to know the different advantages of each company. Make sure a hard time for your loved ones isn’t made harder by a financial burden, check life insurance rates today.

Does Life Insurance Pay in Cases of Suicide?

Sadly, suicide is all too common: in fact, it’s the 10th leading cause of death overall in the United States. Many people think that if someone commits suicide, not only will their family be experiencing unimaginable grief, but their family will also be unable to access their life insurance benefits, because it’s a common misconception that suicide is not covered under life insurance. But that is not necessarily the case: when it comes to suicides, the reason life insurance companies have a “suicide clause,” or an exemption for death by suicide, is to prevent people from buying policies immediately before taking their lives so that their families can receive financial benefits – but that doesn’t mean that suicide is never covered by life insurance.

When Does Life Insurance Cover Suicide?

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Suicide rates have steadily increased over the years, which is why life insurance companies have a suicide clause.

Suicide rates increased around 1% every year in the U.S from 2000-2006, and have increased 2% each year after 2006; because of this, life insurance companies have actually changed their policies: while at one point, they never paid out benefits in cases of suicide, most are now better prepared to help family members if it does happen. Life insurance policies now cover suicidal death, as long as it occurs within certain periods:

Life Insurance Suicide Clause

This clause is a provision put into most life insurance policies that outlines the specifics of your coverage if you were to commit suicide. Generally the clause is a 2-3 year exclusion period, which means once you have had the policy for 2-3 years, depending on the insurance company, your family will receive your death benefits even if you commit suicide. On the other hand, if you were to take your own life during that 2-3 year period, the insurance company would have the ability to investigate your death and deny coverage, meaning your beneficiaries would only get a refund on premiums paid towards the policy, not the death benefit. This is meant to prevent any applicant from taking out a life insurance policy and then taking their life immediately after. 

Contestability Period

In addition to the suicide clause, all life insurance policies have a contestability period, which is also generally the first 2-3 years of the policy. During this period, the insurance company has the ability to contest or deny a claim for a number of reasons, including if they believe you lied on your application, committed an illegal act that led to your death, or that you committed suicide. 

Does Life Insurance Cover Physician-Assisted Suicide?

As long as your policy’s contestability and suicide clauses have expired, your life insurance policy might cover physician-assisted suicide, which is generally defined as someone dealing with a terminal illness giving permission to their doctor to administer lethal doses of medication to end their life. There are currently 11 states, and Washington D.C., that have laws protecting the right to assisted suicide:

  • California
  • Colorado
  • Hawaii
  • Maine
  • Montana
  • New Jersey
  • New Mexico
  • Oregon
  • Vermont
  • Washington

Make sure to check with your life insurance company if you have any questions about coverage, and always be honest when filling out your application. If you have a terminal illness, most companies will deny coverage, but some might still allow you to purchase a policy; however, if you lie about your medical condition, that is grounds for the insurance company to claim fraud, which would leave your family with nothing. 

Payouts For Suicide

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Before you can purchase a life insurance policy, the insurer will conduct an analysis of your physical and mental health. If you are living with depression, you will most likely be able to get a policy as long as you are getting treatment and taking your medication, but the rates and coverage you will be offered will be determined on a case-by-case basis. In addition, if you do not disclose any mental health conditions when you first apply for your policy, your insurance company could deny payouts in the event of a suicidal death.

 If you are in crisis, call the toll-free National Suicide Prevention Lifeline at 1-800-273-TALK (8255) – this service is available to anyone, 24 hours a day, 7 days a week. All calls are confidential.

If you are looking for a life insurance policy, the best way to find the right one for you and your specific needs is by working with an agent who specializes in life insurance. We have provided the top life insurance companies in the nation below; each offers hassle-free assistance and the most competitive rates. Always check multiple sites to make sure you have bargaining power and know the advantages of each company. Make sure a hard time isn’t made harder by a financial burden, check life insurance rates today.