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.

Compare Life Insurance Plans

  • Let us help you choose the right Life Insurance Plan for you & your family.

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.

 

Compare Life Insurance Plans In 3 Easy Steps

  • Let us help you find the right Life Insurance policy to protect your family.

 

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.

Compare Life Insurance Plans

  • Let us help you choose the right Life Insurance Plan for you & your family.

What is Spouse Life Insurance?

Purchasing a life insurance policy is a great decision when you have a growing family, but you have to remember that your life insurance policy only covers you. Your family will not receive a death benefit if your spouse dies unless they have their own life insurance policy. But what if your spouse does not have a policy? Is it possible for you to take out a life insurance policy on your spouse?

What Is Spouse Life Insurance?married couple making hearts together with their hands

Spouse life insurance is a type of policy that covers your spouse or partner, leaving a death benefit for you and your family if they die. A partner can purchase the policy on their loved one, including a husband, wife, common-law spouse, or domestic partner. This type of life insurance falls into the category of dependent life insurance, which generally provides less coverage than standard policies.

How Does Spouse Life Insurance Work?

If you decide to take out a life insurance policy on your spouse, you will still have to go through the underwriting process – but only if you choose a permanent or term life insurance policy that requires you to do so. Your life insurance company will have to verify that your spouse is eligible to be insured and assess how much of a risk they are so that they can determine their coverage amount and premium rate. Once you have provided all of the required information, your insurer will offer coverage if your partner meets their requirements. 

Reasons To Consider Buying Life Insurance On Your Spouse

If you are conflicted about whether you should purchase a spouse life insurance policy, consider the following reasons why it might be a good idea: 

  • Spouse life insurance can replace their income- If your spouse is the breadwinner of the family or head of the house, life insurance is very important to have, so that your family would not have to struggle if your partner were to pass away. Their income probably covers many expenses, including mortgage payments, and you don’t want to lose your house or struggle to pay any other household bills.
  • You have debt– If you have shared debt or loans, you also share the responsibility of repaying them, even if your partner passes away.
  • You’ll need help running the house– If your spouse takes care of the household chores, including taking care of the kids, cooking, cleaning, and laundry, and they pass away, you might need to pay someone to help with all of these things, and life insurance benefits can help with this. 

Can You Take a Policy Out On Your Spouse Without Their Knowledge?

white question mark in a green circle
You cannot take out a life insurance policy on your spouse without their consent.

Both partners in a family need to be covered by life insurance in case the unexpected happens, since each partner has a role and adds value to the household in different ways. But purchasing a policy to cover your partner is something you need to discuss with them, especially since it is illegal to purchase life insurance coverage for your spouse without their knowledge. You must first get their consent and their signature for the policy – even only getting verbal consent to sign the policy can be considered insurance fraud.

If you’re looking for life insurance for you, your partner, or both of you, the best way to find the most affordable policy is by working with a licensed agent from a top-rated insurance company. They can help you find a policy with good rates, and give you ideas on how to cut down on costs. We have listed some companies to work with that will be able to find you the most coverage for less. 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