If you’ve just lost your spouse, you’re likely dealing with one of the most difficult times of your life while also trying to manage and maintain your household. We typically recommend holding off on making major decisions after the loss of your spouse. For instance, some survivors start thinking about selling their home right away but have not given themselves the chance to deal with their grief first. Unfortunately, there are many decisions that will require immediate or quick action. One such decision is determining how to appropriately handle life insurance proceeds.
In preparation for the unexpected loss of a spouse, many families purchase life insurance policies to offset a loss of an income source. These life insurance policies can vary in size but are often times substantial as they can be used to fund a significant loss. This may be the first time you’re dealing with an asset of this size or with your family finances at all. There will be many ways you can use these funds including but not limited to:
In many cases, life insurance is initially purchased to help pay off a mortgage or other liabilities at the time of an unexpected passing. Paying off your mortgage can be a huge relief especially if you’re now relying on a single income stream.
Another reason insurance is purchased is to ensure that your children’s or grandchildren’s education costs are fully covered in the event of your passing. Assuming this is still a goal of yours, your financial advisor can guide you in using the appropriate vehicles for education funding so that this process remains tax efficient. In most cases, a 529 account will be a great vehicle for education savings, however, there may be other uses for the proceeds.
While options one and two are standard reasons for purchasing insurance, you may also have a need to use the proceeds for your everyday living expenses. Depending on the size of these policies and your personal financial circumstances, it may be appropriate for you to invest the proceeds while establishing a tax efficient withdrawal strategy.
Again, if this is your first time handling your overall financial situation, this process may be overwhelming. Rest assured that your financial advisor is here to help you in developing the appropriate strategy for you.
These are just three options for life insurance proceeds, but every situation is unique. It’s important to have an understanding of your entire financial situation before making any decisions. As always, we highly recommend working closely with your financial advisor who can develop an appropriate strategy for you and your family. It is our responsibility to bring you comfort in knowing that the decisions you’re making are truly in your best interest.