What to Do with Life Insurance Money

what to do with life insurance money text overlaying image of a heart on a pile of moneyAfter 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.

Invest

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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Ditch the Clutter, Your Mind and Wallet Will Thank You

How’s the spring cleaning going this year? Are you finished? Still knee deep in your piles of “keep,” “donate,” and “trash” bags? Or did you give up? Should we not even ask? Wherever you are in your annual quest to clean, tidy, and declutter, we’ve got some motivation for you not to quit (or to start). Unless, of course, you’re one of those people who’ve already finished, in which case we salute you (and silently curse you). All that excess clutter around you is more than just an eyesore, or a hazard to your feet (we’re looking at you, LEGO), it can actually drag you down mentally, and be a drain on your finances. So to keep you going, let’s look at how decluttering can be good for your mind and your wallet! 

Your Brain on Decluttering

We’re going to lay something kind of deep on you: sometimes the clutter that has accumulated around you is a physical symptom of what’s going on in your mind (and sometimes it means you have kids, which also means you’ve got a cluttered, stressed mind!). So that means the opposite is also true: decluttering can have a positive affect on your mental health. How?

1. Decluttering can boost your confidence and strengthen your decision-making skills

caucasian woman smiling with her thumb up

Part of what some of us dread about decluttering is all the choices we’ll have to make, especially about what stays and what goes. When you’re in a not-so-great mental state, making decisions can become overwhelming, which can up your anxiety levels. But a good old-fashioned clean-out can boost your confidence in your decision-making skills, and even make you feel empowered! You’ll be restoring your sense of agency and usefulness as you sort through the things that you need, and the things that are might merely be “should keeps,” or things you’re holding onto to please someone or for some other reason that isn’t helpful to you. 

Not only that, but making the choices about what stays and what goes in your environment can be a very powerful way to set boundaries in your life, both with yourself and with those who share your space.

2. It can reduce anxiety

Humans prefer order and symmetry, so decluttered spaces can be calming to an anxious mind; in addition, patterns can also help relieve anxiety. That means that not only does having things ordered and balanced around you help to reduce anxiety, the actual process of creating patterns by sorting similar items, taking inventory, and organizing what stays and what goes can be a sort of coping mechanism to release anxious energy. Not only that, but as Nidhi Tewari, a licensed clinical social worker and mental health therapist, points out, “The process of organizing requires that you be present, so it can be grounding in instances where anxiety is heightened.”

3. It can energize you

We get it: it can be hard to get up off that couch and start the decluttering process. But once you do, you’ll kick yourself into that high-gear, getting-stuff-done mode, which can spill over into other parts of your life. According to clinical psychologist Dr. Bhavna Barmi, “When you accomplish the relatively small task of decluttering, you attain a sense of accomplishment which leaves you more energized and helps you move towards your goals.” After all, anytime something you do (no matter how big or small) takes you toward a goal, you’ll feel better, more productive, and more motivated to keep on keepin’ on!

4. It can reduce stress and boost your mood

african american woman smiling
Decluttering can improve your mood.

Feeling stressed because you can’t find things in your space, or even lashing out at the people around you when things get lost, or when the clutter gets overwhelming? Yup, clutter definitely causes stress; in fact, in one study, when working couples gave tours of their homes, women who used more words describing clutter and disorganization also tended to show higher levels of the stress hormone cortisol, suggesting chronic stress. So, on the flip side of that, decluttering can help to alleviate stress: other studies show that the actual act of cleaning and decluttering can decrease overall stress by lowering cortisol levels, and increasing endorphins (our feel-good hormone).

Your Wallet on Decluttering

Are you starting to feel good already, just thinking about how a decluttering project can benefit your mental health? Great! But the benefits don’t stop there: decluttering can actually save you money, as well! It’s a common misconception that keeping everything will save you money in the long run, but that just isn’t the case (in fact, studies show that storing unused items in your home costs roughly $10 per square foot). Here’s why:

1. You won’t need to buy multiples of anything anymore

Get this: according to one study, U.S. households collectively spend a whopping $2.7 billion annually replacing lost items! But if you declutter, once you’ve gotten rid of excess stuff, and whittled down to the stuff you need, and organized the stuff that’s left, you’ll know exactly what you have and where it is. Great for your stress levels, but also really practical because you’ll no longer end up buying something you already have! 

2. You’ll save money on storage solutions

Ok, a trip to one of those stores that sells endless rows of streamlined storage solutions can be really fun, we admit it. But all of that extra stuff that you need to store all of your extra stuff is costing you a whole lot of money! And here’s a tip while decluttering, while it’s easy to get caught up in the excitement of the moment and spend a bunch of money on organization items halfway through the decluttering process, don’t. You need to know how much stuff you’re actually keeping before you buy storage. 

3. You can cash in on the good stuff

Remember that old decluttering technique: divide everything into piles of things to keep, donate, and trash? You can also add a fourth category for the stuff that’s in great shape: sell. That used to be a tall order, with a lot of running around to places like consignment shops, but nowadays you have a ton of options right at your fingertips! Try sites/apps like eBay, Mercari, Poshmark, ThredUp, Vinted, and Facebook Marketplace.

And don’t forget about that donate pile: donating your unwanted stuff feels good (just soak in that good feeling knowing you’re helping others while you declutter!), but it’s also tax deductible.

4. You can’t pay bills you can’t findfiles and papers stacked on top of each other

Nobody likes paying bills, right? But what’s worse is paying your bills late and racking up late fees or hurting your credit score. And that’s what’s happening to a lot of people with cluttered spaces, simply because they misplace their bills! In fact, 25% of adults say they pay bills late because they lose them.

5. A decluttering mindset can rein in spending

You might notice that, once you’ve done some decluttering, you won’t want to go back to the bad old days of a cluttered house, and will be more likely to stay in that “decluttering mindset.” That might also mean that you’ll be less likely to mindlessly buy unnecessary stuff that will just become clutter, which will save you money as you shop!

6. Time is money

Having a cluttered space can suck up your time, and take you away from more productive things. Consider these stats: the average person spends two and a half days searching for misplaced items each year, and nearly 25% of us are late to school or work at least twice a week as a result of searching for lost items. Not only that, but in the average home, getting rid of clutter eliminates 40% of the housework! Just think what you could be doing with all that extra time! You’ll have more time to do stuff yourself, instead of paying someone else to do it, or you’ll be able to find better deals on things. Add to that your reined-in spending, and you might find you have to work less, or you can start paying off your debts!

There you have it: we’ve given you 11 great reasons to get back on that spring cleaning decluttering train. It might feel overwhelming when you look around you at all the clutter that’s dragging you done, but you got this. Just start small and don’t feel like you need to do everything in a day – remember that every step you take towards your goal will make you happier, healthier, and maybe even a little better off financially.