If you suffer the loss of a loved one, you have enough stressful things to worry about – how to pay your bills or cover your children’s college tuition shouldn’t be one of them. The purpose of life insurance is to help relieve the financial burden that often comes with the loss of a loved one. From the emotional stress to the complexities of finding a new normal after the loss of a loved one, life insurance can help lift that burden, allowing you to focus on healing emotionally.
Death benefits from a life insurance settlement can be such a blessing, but suddenly having access to a large amount of money can be quite daunting. Should you pay off your debt? Save or invest? So many options leave many to wonder - what is the best thing to do with life insurance money? Before we discuss that, you may be wondering how a life insurance payout works. Who gets the money? How long does it take to get a life insurance payout?
While every life insurance company may have different procedures (so check with your agent), a typical life insurance payout works like this:
- Life insurance benefits (the amount of money owed by the insurance) are paid to a policy’s beneficiary (a specific person, usually family member, listed on the policy) after the insured has passed away.
- To receive life insurance benefits, a beneficiary needs to file a claim with the insurance company. Typically, a death certificate will need to be provided to show proof of death and other signed forms as requested by the insurance company, the insurance company will then review the claim and issue the payout if the benefits are due to be paid. These payouts may be a lump sum or issued in installments depending on the policy provisions and choices of the policyowner or yourself as beneficiary.
In some instances, like if the insured dies within the contestability period (usually two years after the policy is issued), the death claim may not be completed until further investigation. But after you’ve filed a death claim and receive your life insurance benefits, what should you do?
Take a second to think
First and foremost, don’t make any quick decisions. You are likely not in a state of mind to make a sound decision. Unless you need the money for final expenses like the cost of a funeral and burial, don’t feel like you must act right away.
Seek guidance from a financial advisor
Seeking advice from a trusted financial advisor is a very smart thing to do, especially if you’re struggling emotionally, because he or she can give you professional, personal advice. A financial advisor can help you see your financial situation in the big picture and guide you on your next steps.
With your life insurance payout, you could:
- Pay off debt: Paying off debt you owe (like credit card bills that have built up, your car loans, etc.) can help free up money in your monthly budget and save you from paying future interest on those loans.
- Cover everyday expenses: From monthly bills, childcare costs, and college tuition to grocery trips, medical payments and more, life is pricey. Life insurance benefits can help you with the day-to-day expenses.
- Put it in a savings account: Putting a large sum of money into a savings account that yields high interest is putting your money to work for you. But it’s important to know the FDIC only insures money up to $250,000 per depositor, per FDIC-insured bank. If your payout is greater than this, you may need to have multiple savings accounts at various banks or consider other options. Some insurance companies can even hold onto the money for you and pay you interest.
How you decide to use a life insurance payout will depend on your personal financial situation, but our local agents are ready to help walk you through the life insurance policy from the first quote to the final payout. Get a quote today!