Advice
Dealing with the death of a loved one is not easy. With it comes many decisions, including how to handle the funds from their life insurance policy. Whether you are the sole recipient of a loved one’s policy or only receiving a portion of it, it is essential to know a few things when it comes time to receive this payment.
Filing the Claim
Your first step will be filing a claim with the life insurance company. Once you have determined which company holds the policy, you must contact them to determine their claim procedure. This will often include a claim form and a copy of the death certificate. There is no deadline for filing a claim, but it is wise not to wait too long as the company will likely take 30 to 60 days to process it.
While most claims are paid out without issue in the first month or two, some may be delayed if questions about the policy or other issues require further information. Delays don’t necessarily mean that the claim will not be paid. It may just take longer than expected.1
What to Do With Life Insurance Funds
Once the claim has gone through and you have received the funds, you must determine how you wish to use them. The way that may be most appropriate for you will likely depend on your current financial situation and future financial goals. The most important thing is not to rush into any immediate decisions and carefully consider them all so that you don’t regret your decision once the money has already been spent. Below are just some of the options to consider before making a final decision.2
Paying Off Debt
If you have debt, especially high-interest debt, using the money to pay off a large chunk of it could help you significantly improve your financial situation and free up some of your income toward other bills and savings each month.2
Build an Emergency Fund
If you don’t have an emergency fund, a life insurance payout is the perfect opportunity to create one, allowing you to build some financial stability and be prepared for unexpected financial emergencies.2
Start an Education Fund
Another great option is to use the money to fund a 529 college savings plan for your child or grandchild to help them with future education expenses. If they already have a fund, a lump sum contribution will greatly boost it.2
Invest It
If you don’t need the money immediately, why not invest it and let it grow for your future retirement or other financial goals? Contribute to your 401(k) or IRA, or contact a financial professional to learn about other investment opportunities.
Spread it Around
If you have a larger payout, consider a combined approach. Use some of the money to pay down higher-interest debt, beef up your emergency fund, and put some of the money in investments to save for your retirement and your children’s education.
Funds from a life insurance policy may help with many financial needs as long as you take the time to make a well-thought-out plan with how you plan to use it.
For more information on financial planning, contact Scott Tonkovich by calling (574) 389-8953 or send an email to [email protected].
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Footnotes:
1 How life insurance payouts work, Bankrate, https://www.bankrate.com/insurance/life-insurance/how-life-insurance-payouts-work/#types
2 Steps to Take When Someone Passes, Farmers Insurance, https://www.farmers.com/life-insurance/preparing-for-death/
Sources
https://www.bankrate.com/insurance/life-insurance/how-life-insurance-payouts-work/#types