Life insurance payout options determine how your death benefit is paid after you die. Payout types include installments and annuities, lump-sum payments or a retained asset account. The type of payout depends on the life insurance policy. Interest you receive from a life insurance payout is taxable.
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Insurance claims don’t happen automatically with the death of the insured. A beneficiary of the policy will need to file a life insurance claim. It is relatively simple, but the beneficiary will need a few documents to file the claim.
Documents Needed to File a Life Insurance Claim
Death Certificate of the Insured The funeral director of the insured can provide a certified copy.
Copy of the Life Insurance Policy The policy number and beneficiary information can speed the process.
Insurer’s Claim Form Most can be filled out online, but some insurers require people to print out a copy and mail it to the company.
It is important to notify the insurance company as soon as possible after the insured’s death because processing the claim and making a payout can take several weeks.
Most life insurance claims are paid out within 30 to 60 days after filing a claim, but there can be delays. In many states, insurers are allowed 30 days to review the claim before making a payout, denying the claim or asking for more information before making a decision.
Insurance companies are motivated to make payouts quickly after receiving a claim and proof of death because they can face high interest payments to the beneficiary the longer they delay the payout.
Certain situations, usually involving the cause or circumstances of the insured’s death, can delay life insurance payouts.
Most policies allow the insurer to investigate the death to make sure there has been no insurance fraud.
Reasons an Insurer May Delay or Deny a Life Insurance Payout
Death During Contestability Period This is a one or two-year period after the policy is first purchased and there may be a delay.
Death by Murder A delay is possible while the insurer determines that no beneficiary is a suspect in the homicide.
Death by High-Risk Activity If the insured has a risky hobby that was never mentioned in the policy application, payout may be denied.
Death During Illegal Activity A payout may be denied if the insured was committing a crime or driving under the influence.
Lying on the Original Application Payouts can be denied if the insured lied about health or other risks to his or her life when buying the policy.
If the insured died during the contestability period, insurance companies may also delay payouts for six to 12 months.
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In most cases, beneficiaries choose the type of life insurance payout after the insured dies. Payout options include lump-sum payments, installments and annuities and a retained asset account.
Lump-sum payments are the most common type of life insurance payouts. It is a large sum of money, paid out all at once instead of being broken up into installments.
A lump-sum payment gives beneficiaries immediate access to the money, providing financial security quickly. The money can be applied to the cost of a funeral and burial as well as paying medical and other bills.
Lump-sum payouts are also tax free unless you allow it to sit in an account and accrue interest.
Installment payments and annuities are two more payout options to consider if a lump-sum payment would be problematic.
Installment payments are unlike other options because the insured chooses this option instead of the beneficiaries.
They can spread the payments out over anywhere from five to 40 years with the bulk of the death benefit accruing interest until it is all paid out. This allows the insured to guarantee an income stream for his or her beneficiaries.
Annuities are a type of financial instrument that pays a fixed income over a specified period of time. A beneficiary can choose to take some or all of a lump-sum payment and buy an annuity. This provides an income stream to the beneficiary for the term of the annuity.
As a beneficiary, you would decide if you want an annuity to provide you with payments for a fixed number of years or for the rest of your life.
A fixed-period annuity, also called a period-certain annuity, condenses the payouts over a fixed number of years. If the beneficiary dies, his or her beneficiary will receive any remaining payments until the fixed number of years expires.
A lifetime annuity pays out a percentage of the death benefit plus interest every year for the rest of your life.
Retained asset accounts are a type of checking account run by the insurance company that pays out the death benefit.
The money is kept in the retained asset account and the beneficiary receives a payout checkbook. The beneficiary writes checks on the account as money is needed. There are no penalties or limits on how much money the beneficiary may withdraw from the account.
The account accrues interest as long as it remains open.
There are several other options for choosing a life insurance payout that may be more suitable for different people.
Additional Life Insurance Payout Options
Interest Income The insurance company keeps the death benefit but pays the interest it accrues to the beneficiary for the rest of his or her life or a fixed time period.
Life Income The insurer calculates a fixed, guaranteed monthly income for life based on the beneficiary’s age and gender.
Life Income with Period Certain Similar calculation to life income, but with a specific number of years.
Specific Income Allows annual payout of a fixed amount as extra income for the beneficiary.
Death benefits are generally not considered gross income so you do not have to report them to the Internal Revenue Service. But any interest you receive on the death benefit is taxable and you must report it as interest income, according to the IRS.
Since life insurance payouts usually involve large sums of money, the interest can accrue quickly. This is something to consider when choosing what type of payout you choose to receive since many of them involve interest payments.
Read each finance expert's advice on how to invest your life insurance proceeds:
#1: Marguerita Cheng (Blue Ocean Global Wealth)
"Where and how you decide to invest should take into consideration your age, your time horizon, income & expenses"
Answer:
At first glance, the question "How should a surviving spouse invest their life insurance proceeds?" sounds simple, but as with many things in life, the best response is "it depends".
There is no perfect investment recommendation because every family situation is unique.
Your investment allocation or where and how you decide to invest should take into consideration your age, your time horizon, income & expenses, assets & liabilities tax bracket, goals, etc.
For example, when my Dad passed away in February 2015 after his 9 year struggle with Parkinson's disease, I helped my Mom complete the paperwork for his whole life insurance policies.
I gave my Mom the same advice that I give all of our clients.
Allow yourself the time and space to grieve.
Do not rush into an any investment decisions.
In fact, the best thing you can do at this time is refrain from making any investment decisions.
It is important to allow yourself to adjust to the uncertainty.
If appropriate, enlist the help and support of friends and family and work with a Certified Financial Planner who can help you develop a financial plan so that you understand your present situation.
If you understand your present situation, you can feel more comfortable and confident planning or the future.
Here are some strategies to help you chose the right wealth manager for you and your family.
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#2: Philip Taylor "PT" (PTMoney.com)
"If you have the income to support it, start placing the stock fund and cash fund portfolio into tax-advantaged accounts"
Answer:
First, take a year to think about it without doing anything.
You don't need to rush it.
Keep the proceeds in a savings account with interest.
Then, after major obligations like the mortgage have been paid off, take the remaining proceeds and split it into thirds: one in a low-cost stock index fund, one in a bond fund, and the other in cash in a savings account.
Moving forward, if you have the income to support it, start placing the stock fund and cash fund portfolio into tax-advantaged accounts using annual maximum limitations.
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Related Content: The Ultimate Guide To Term Life Insurance
#3: Barbara Friedberg (Robo Advisor Pros)
"Put the proceeds into a bank savings account, make sure not to exceed the FDIC insurance limits of $250,000 per depositor, per bank, per ownership category."
Answer:
After losing a loved one, the first step is to wait.
Put the proceeds into a bank savings account, make sure not to exceed the FDIC insurance limits of $250,000 per depositor, per bank, per ownership category.
Pay off your debt.
Hold out a percent of the proceeds for emergencies (6-9 months living expenses).
Invest the rest in accord with your risk level and time horizon. If you lack investing expertise, you might want to hire a financial planner to help invest.
You might consider using a robo-advisor to help invest the proceeds.
You can find reviews of Personal Capital, Betterrment, Schwab and others here.
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#5: Carl Richards (Behavior Gap)
"They should invest the only way one can invest: based on their values and goals."
Answer:
No need to make this complicated, they should invest the only way one can invest: based on their values and goals.
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Percent of People (in a recent survey by The Simple Dollar) that would spend a financial lump-sum paying off debt.
#6: Tyler Huck (Oxygen Financial)
"Putting aside money for your children in a 529 or UTMA account to draw from in the future for college expenses can be a great idea."
Answer:
Wipe out debt that may be dragging down your family income.
If there is any outstanding mortgage, auto loans, consumer debt, student loans, etc. that are on the family balance sheet, go ahead and wipe those out.
Putting aside money for your children in a 529 or UTMA account to draw from in the future for college expenses can be a great idea.
If the surviving spouse needs to supplement the deceased spouse's income, invest the remaining funds into a non-qualified brokerage account with interest bearing positions that are more conservative in nature.
While life insurance proceeds that are paid to a beneficiary are tax free, any interest received off investments of those proceeds are taxable.
Looking at state specific municipal bonds can be a great way to remain conservative with your investments and generate income for yourself that is exempt from those taxes.
For example, if you live in Georgia and buy municipal bonds that are Georgia-specific, all interest generated from those bonds are tax free at both the federal and state level.
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#7: Andrew Schrage (Money Crashers)
"You'll probably need a portion of life insurance proceeds for near term expenses"
Answer:
You'll probably need a portion of life insurance proceeds for near term expenses, but you should try to make sure that you have at least 50% left for investing purposes.
After that, maximize your 401k plan contributions if your employer offers such a program.
If more is left, open either a Roth or traditional IRA.
Another option is to invest in real estate, but you should really only undertake that strategy if you're well-versed in that area.
You could also beef up your own retirement portfolio, making sure to maintain a healthy mix of stocks and bonds, with the mix dependent upon your age.
A final option is to purchase either an annuity or life insurance policy with a cash-value aspect to it.
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#8: David Ning (Money Ning)
"The surviving spouse should seriously consider increasing the safe asset portion of the household’s investment portfolio."
Answer:
It’s important, first of all, to assess whether this large insurance proceed along with a lost of one source of income changes the financial situation of the household, as it often does.
The surviving spouse should seriously consider increasing the safe asset portion of the household’s investment portfolio.
Once that decision is made and the new asset allocation mix is set, then just invest according to the plan.
We at MoneyNIng.com advocate low cost diversified index investing, so the mechanics of it all should be straight forward.
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#9: Benjamin Bingham (3 Sisters Sustainable Management)
"In choosing investments they should consider the environment and society as well as their financial needs."
Answer:
First, this depends on the survivor's age and circumstance.
If there is another generation to consider, after securing enough investments to match the survivor's risk/return profile, income and liquidity needs, they might consider paying off all debts so that is no longer a worry or burden in the future.
They should set aside travel or other wellness related money to help them heal from their loss and if they aspire to greater knowledge or education, they should invest in themselves by enrolling in courses that give them a sense of meaning and purpose.
Lastly, in choosing investments they should consider the environment and society as well as their financial needs.
This is the legacy they leave as an inspiration to others.
For further thoughts on money they could check out my book here.
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#10: John Madison (60 Minute Finance)
"In determining how a surviving spouse should invest life insurance proceeds, I think it's important to first evaluate their specific situation."
Answer:
In determining how a surviving spouse should invest life insurance proceeds, I think it's important to first evaluate their specific situation.
There really isn't a universal rule, in my opinion.
For example, if the surviving spouse is employed outside the home and has earned income sufficient to meet their current spending needs, the insurance proceeds could be invested with retirement in mind.
Conversely, a stay-at-home surviving spouse (for example, a parent at home with their children) would need the proceeds to provide replacement income.
In cases like this, the proceeds would need to be more conservatively invested.
For example, the beneficiary may benefit from one to two years of expenses left in cash, then laddering CD's for years three through six, then perhaps the balance of the proceeds could be invested in equities via a low-cost index fund.
As the years pass and the CD's mature, a portion of the equity position would move to new CD's to protect against a significant equity market correction at the wrong time.
Obviously, it's important to make sure enough life insurance is purchased in order to fund the investment pools if the surviving spouse would need to use the proceeds to cover their living expenses for an extended period of time.
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#11: Eric Roberge (Beyond Your Hammock)
"The short answer is that it depends on many factors, including the age and work status (employed, retired, etc) of the surviving spouse"
Answer:
The short answer is that it depends on many factors, including the age and work status (employed, retired, etc) of the surviving spouse, and the amount of existing asset outside the life insurance proceeds.
For example, if the surviving spouse is 50 years old and makes enough money to afford his or her lifestyle, then the proceeds should probably be invested for growth to ensure that the balance is adequate for the 20-30 years of retirement down the road.
This type of portfolio might consist of a 60/40 split between stocks and bonds, split between various asset classes including US stocks, international developed countries, emerging markets, corporate bonds, and treasuries.
You can find exchange traded funds and mutual funds that will provide you access to these asset classes.
If however, the spouse is 80 years old and needs the life insurance proceeds to generate income now to pay for current expenses, he or she might consider investing in dividend paying stocks and also set up a bond ladder strategy.
The purpose of this type of portfolio would be to generate income and maintain principle.
A client's risk capacity is greatly reduced when assets are needed today.
Therefore, the portfolio should be much more conservative than that of the previously mentioned 50 year old spouse.
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#12: Robert Berger (Dough Roller)
"It depends on his or her investing goals, time horizon, and risk tolerance"
Answer:
There's no one answer to this question.
It depends on his or her investing goals, time horizon, and risk tolerance, to name a few.
As a general rule, you want to stick with low-cost, index funds with a tilt toward stocks over bonds.
Beyond that, it would depend on specific circumstances.
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#13: Eric Rosenberg (Personal Profitability)
"Life insurance is designed to help you cover living expenses, so a surviving spouse shouldn't just blow the money on fun purchases and trips."
Answer:
Life insurance is designed to help you cover living expenses, so a surviving spouse shouldn't just blow the money on fun purchases and trips.
After paying for funeral costs, the best option is to invest the funds conservatively to last as long as possible.
Following the Warren Buffett plan he suggested for his wife when he passes away, you should invest 90% in a low-fee S&P 500 index fund and 10% in a short-term bond fund.
If you need cash from the investments immediately and over time, a low-cost dividend fund might make more sense.
Whatever you do, don't spend too much too quickly.
Do not rush and make dramatic, lavish lifestyle changes.
The life insurance proceeds you received might have to last a long time, so be thoughtful about every dollar you spend to ensure it lasts a very long time.
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#14: James Dahle (The White Coat Investor)
"With regards to investing, many times the death of the insured has changed the survivor's need and ability to take risk"
Answer:
A life insurance payout, like any other windfall, should be sat on for a few months while a new financial plan is drawn up by the investor, with or without an advisor.
There are times it should be used to pay off debt, times when it should beef up an emergency fund, times when it should be invested for the future, and times it should be spent.
With regards to investing, many times the death of the insured has changed the survivor's need and ability to take risk, so it is likely that a change in asset allocation is warranted.
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#15: Sophia Bera (Gen Y Planning)
"Interview fee-only CFPs and hire the one who you connect with the most"
Answer:
The first thing I recommend is to pay off any high interest rate debt, max out your retirement accounts for the year, and then don't make any other big decisions for at least 6 months.
There's a great book called "Sudden Money" by, Susan Bradley that I highly recommend for anyone who receives an insurance settlement, lottery winnings, or a large inheritance.
During those 6 months, interview fee-only CFPs and hire the one who you connect with the most to help you navigate through your money more effectively.
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#16: Paul Rubin (Prime Wealth Management)
"One of the biggest factors will be the surviving spouse's age to see how long to plan for"
Answer:
As it is commonly said in the industry, the answer is it depends.
One of the biggest factors will be the surviving spouse's age to see how long to plan for, but then the annual income need (i.e. gap to fulfill annual living expenses) from the life insurance proceeds will need to be determined as well.
On a high level, once the withdrawal rate is calculated in conjunction with other assets and financial goals, the investment strategy can be recommended in order to keep up with inflation and to support the surviving spouse's financial needs over the duration of the rest of his/her life.
The proposed investment strategy should align with the surviving spouse's risk tolerance, to ensure consistency of the strategy long-term.
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#17: Roger Wohlner (The Chicago Financial Planner)
"He/she should take their time to cope with their loss and then sit down and look at their overall financial situation"
Answer:
Each surviving spouse's situation is different so there is no "one size fits all" answer.
He/she should take their time to cope with their loss and then sit down and look at their overall financial situation and invest the proceeds accordingly.
A young widow/widower with minor children will have different financial needs than an older surviving spouse in or near retirement.
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#18: Neal Frankle (Wealth Pilgrim & MCMHA)
"The survivor might have enough income and therefore may want to tuck it away for retirement or education"
Answer:
A surviving spouse should invest the money as most appropriate to their particular situation.
The survivor might have enough income and therefore may want to tuck it away for retirement or education.
On the other hand, the survivor may not have enough income once their spouse dies.
What is critical is that the survivor revisit their financial plan and understand what they need and how much income those proceeds can really provide.
For example, $500,000 may seem like a lot of money - and it is.
But if you receive that as a death benefit and withdraw $75,000 a year to make up for your deceased spouse's lost income, that $500k will be gone in less than 10 years.
So you have to figure what you need the money to do for the survivor and over what period of time.
If you need the money to provide more benefits than it can reasonably expect to deliver, please revisit your financial plan.
All that said, for most people, if you want this pot of money to provide long-term benefits, it should be invested in long-term investments.
That means, for most people, at least some portion should be invested for growth. Here's a post that goes into retirement income in greater detail.
So the most important take-away is - there is NO ONE RIGHT ANSWER.
It depends on each situation and understanding that situation is far more important.
You can't find the right investment unless you understand what neighborhood to look in.
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#19: Todd Tresidder (Financial Mentor)
"The first thing you want to do when you receive a life insurance payout is part it in a safe, secure place"
Answer:
The first thing you want to do when you receive a life insurance payout is park it in a safe, secure place like Treasury Bills or a Money Market Fund where there's little risk of loss (or gain).
Then do absolutely nothing with it.
Just sit on it.
The reason this is a critically important first action is because you must emotionally take possession of the money before you invest it, and that takes time.
It must become "your money" so that if it's lost you feel a sense of loss.
You don't want to invest life insurance proceeds right after receiving the check because you'll be prone to "easy come, easy go" investment mistakes.
This will be difficult to do because the investment industry has been remarkably effective at making you believe you must be invested at all times.
However, that's biased advice resulting from the fact that they only make their fees when your invested but make nothing off you sitting in cash equivalents.
The reality is inflation won't destroy your nest egg in a year or two of sitting, and in the meantime you can develop your investment knowledge and do some research so that you're emotionally ready to invest the money when the right opportunity presents itself.
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#20: Gina Young (Money Savvy Living)
"The insurance proceeds need to be invested into safe investment vehicles"
Answer:
When a surviving spouse receives a life insurance benefit, it should be invested into very low risk mutual funds, CDs, or money market accounts.
This money is presumably to be used to pay for items such as the home the surviving family lives in, college tuition for children, or other more immediate expenses.
With that in mind, the insurance proceeds need to be invested into safe investment vehicles, which will preserve the principle and earn interest
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#21: Frugal Trader (Million Dollar Journey)
"Personally, I would simply index the portfolio with globally diversified ETFs for the long term"
Answer:
Hopefully, there is a plan on what to do with the proceeds prior to the windfall payout.
For some, insurance is for paying off debt (mortgage etc) so that there is less financial burden on the family.
For others, the insurance benefit is to cover lost cash flow into the household for a certain period of time.
If it's a short time frame, then I would use low-risk high-interest savings accounts or other fixed income tools.
If the lump sum is meant to be invested over the long term, I would highly suggest working with a fee-only financial planner so that the windfall can be invested with the proper asset allocation to meet the clients financial goals.
Personally, I would simply index the portfolio with globally diversified ETFs for the long term.
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#22: Brent Sutherland (Ntellivest)
"In the wake of an extreme emotional blow, minimizing the stress of making complicated financial decisions can be priceless"
Answer:
Unfortunately, there is no one size fits all solution for everyday investors, and the same holds true when deciding what to do with an insurance inheritance.
The recipient would need to determine their risk threshold, time horizon, current financial positioning, and investment objectives (which might include leaving behind money for family in addition to providing for their own living, for example) before a proper investment solution can be determined.
If unsure about making this decision independently, I would suggest the beneficiary seek a reputable and trustworthy source for guidance.
Yes, I realize that response is rather boring and boilerplate, so I will tack on something more tangible.
I have experienced that when steady cash flow is the only requirement, and the recipient wants a simplified investment solution, a managed payout fund (such as Vanguard's VPGDX) can work quite nicely.
In the wake of an extreme emotional blow, minimizing the stress of making complicated financial decisions can be priceless.
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#23: Ross Riskin (Rossriskin.com)
"Generally speaking, investing life insurance proceeds should not really be approached any differently than other investments."
Answer:
How a surviving spouse should invest his or her life insurance proceeds is going to depend on his or her age, age of children (if any), goals, current lifestyle, risk tolerance, and employment situation.
Generally speaking, investing life insurance proceeds should not really be approached any differently than other investments.
Creating a diversified and tax-efficient portfolio using an appropriate risk tolerance and time horizon for each goal should be the starting point.
Challenges could arise when we are dealing with a surviving spouse who chooses not to or is unable to work and has young children.
As the family will not only have to focus on retirement and education planning, they may need to strategically invest the life insurance proceeds and other assets to provide a consistent income stream each year in order to maintain the family's current lifestyle; otherwise, the surviving spouse may have to re-enter or enter for the first time into the workplace.
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#24: John Schmoll (Frugal Rules)
"I'd follow the approach of investing in low-cost, broad-based index funds to keep track with the market"
Answer:
Investing life insurance proceeds largely depends on the needs of the surviving spouse/other family members.
Don't be in a rush, but look at your needs - both short and long-term.
Depending on the amount of the proceeds, and other finances, you may want to speak with a professional to get insight on your options.
If all else fails, I'd follow the approach of investing in low-cost, broad-based index funds to keep track with the market.
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#25: Gary Foreman (The Dollar Stretcher)
"In most cases repaying any outstanding debts (including auto loans and mortgages) is a good idea."
Answer:
How should a surviving spouse invest insurance proceeds?
That's a very good question that doesn't have a 'one size fits all' answer.
It would depend largely on the surviving spouse's age and financial situation.
In most cases repaying any outstanding debts (including auto loans and mortgages) is a good idea.
Debt almost always costs more in interest than you'll earn on any investment.
If the survivor is elderly they may want to invest in something that will provide income for the rest of their lives.
Annuities are a possibility, but remember to carefully check out fees and sales charges.
If the survivor is younger, say under 75, they might want to choose either a balance or a stock fund.
Life expectancy is in the mid-80s now and is increasing.
People in their 60s and 70s need to plan for another 20 to 30 years.
That means taking inflation into account.
Ultimately the survivor must integrate the insurance proceeds with the rest of their financial and estate plan.
In most casees that probably means talking with a professional who knows their circumstances and other investments.
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#26: Tony Steuer (TonySteuer.com)
"The first step is to get the payout from the life insurance company rather than leaving it with them on account"
Answer:
The first step is to get the payout from the life insurance company rather than leaving it with them on account.
Any proceeds should then be placed into a savings account for 3-6 months so that they have time to process their loss and return to a routine.
Depending on their level of financial expertise, they should either invest according to their strategy.
And if they been using a financial advisor, consult with them to see what's appropriate.
If they have not been using a financial advisor, they should seek out a qualified financial advisor who can help them develop a sound overall strategy rather than just buying a specific product.
Bottom line, take some time to breathe, there is no rush.
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#27: Shannah Game (Your Millennial Money)
"Before you decide to pay off your mortgage, or go on a shopping spree, you'll want to make sure your foundation is in check."
Answer:
When deciding how to invest your life insurance proceeds it's really important to take an inventory of where you're at financially and what your life will look like as the serving spouse.
Before you decide to pay off your mortgage, or go on a shopping spree, you'll want to make sure your foundation is in check.
Start by asking yourself some questions: what are my monthly financial obligations, do I have a strong emergency fund with 3-6 months worth of expenses saved, what does my debt situation look like, etc.
From there, you can start to create a plan around your proceeds.
While there is no one-size-fits-all answer, investing your proceeds and living off the interest is often a smart way to keep that money growing so you can achieve many money goals in the future.
#28: Cameron Evans (CJ Evans Llc)
"Setting up an emergency fund, paying off debt and/or the mortgage are all major components to building financial longevity."
Answer:
How to invest insurance proceeds is contingent on the surviving spouse's existing financial condition and age.
She may need to do some house cleaning first before moving to investing in general.
Setting up an emergency fund, paying off debt and/or the mortgage are all major components to building financial longevity.
A strong foundation is the key to wealth.
He would also have to consider the future well-being of his kids (if they have any).
Some of those insurance proceeds may need to be invested in 529 plans or some other investment vehicle to secure the children's future endeavors.
After the previous mentioned instances have been fulfilled, I would suggest investing in index funds with emphasis on overall asset allocation.
It all depends on the age of the surviving spouse.
Ideally she would want more bond funds if nearing retirement for less volatility, but if younger, she would want the the opposite.
More stocks versus bonds for growth purposes.
#29: Tim Naughton (My Finance)
"Depends on their age, objectives, and monthly cost of living"
Answer:
Depends on their age, objectives, and monthly cost of living.
On the "safe" side of the spectrum of options, if it provides sufficient income for living expenses, might be to invest in muni bonds -- because then the surviving spouse doesn't have to worry about taxes.
However, if you're in a state without state income tax that can be a waste.
#30: Sanchit Taksali (Investiture)
"They can calculate their monthly budget and invest the corpus in liquid funds for the expenses"
Answer:
Consult to a Financial Planner and invest wisely as per the fund need.
They can calculate their monthly budget and invest the corpus in liquid funds for the expenses.
And with the left proceeds they can invest in their child's education/marriage (if any exist).
They can invest in a Monthly Income Plan and avail the funds as per the need along with a health insurance plan for themselves.
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#31: Peter Anderson (Bible Money Matters)
"Survey data from the federal reserve found that 1/3 of people who received an inheritance had negative savings with two years."
Answer:
When a loved one is lost, it's a good idea to not make any hasty financial decisions and do something you might regret later.
Survey data from the federal reserve found that 1/3 of people who received an inheritance had negative savings with two years.
Put the money in an interest bearing account for a few months and take some time to grieve.
Then be ready to make a plan.
Your course of action will highly depend on the surviving spouse's current living situation.
If they're a stay at home parent with no income, their needs are going to be more immediate and some of the money will likely need to remain liquid, at least for a couple years worth of expenses.
After that you could consider putting a couple years worth of it in CDs, and then the rest in equities.
The surviving spouse will likely also want to sit down with a financial planner to help them come up with a game plan for their money, and for their spending moving forward.
For those who aren't dependent on the insurance benefit, if they're still relatively young I'd think about putting a decent amount of the money into index funds, with a smaller amount of it cash depending on their level of risk that they want to take.
What it comes down to is this.
Take some time to grieve then sit down and make a financial plan that is tailored to your situation.
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#32: Brian Brandow (Money Management Pro)
"Placing the money in an insured, and interest-bearing account is a great first step."
Answer:
Everyone's personal situation will be different, but generally, don't make any rash decision when receiving a lump sum of money from a life insurance policy.
Take time to grieve, and get your life situated first.
Placing the money in an insured, and interest-bearing account is a great first step.
Once you are ready, determine what you will use the money for, possibly some immediate expenses or take a more long term approach and invest in low-cost mutual funds for your future.
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#33: Evan Tarver (Evantarver.com )
"Diversify your assets with a robo advisor."
Answer:
Diversify your assets with a robo advisor.
When you receive life insurance proceeds, the best thing to do with it is to invest it and generate more income.
However, it's not enough to simply dump it into an ETF or mutual fund.
Instead, you should look into robo advisors such as Wealthfront and Betterment.
These advisors ask you questions about your risk and your investment goals, and then come up with a unique portfolio that suits your desired financial outcomes.
The portfolio has debt, equity, commodities, cash, and more, and it is automatically rebalanced for you.
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#34: Jason Preti (Unleashed Financial LLC)
"The actual "how to..." will come naturally by building a plan."
Answer:
I think there is one thing that should be done immediately: Review and update your financial plan with a trusted advisor.
A competent third party will help the survivor through the immediate financial confusion and prioritize the long-term requirements.
The actual "how to..." will come naturally by building a plan.
Priorities are completely different based on the role of who has passed.
The loss of the primary income for a family with school-aged children will have different needs than the loss of a retired spouse.
But, in both situations, by updating the financial plan the answer will let itself be known.
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#35: Steven Fox (Next Gen Financial Planning)
"The fact that a life insurance policy is the source of the money is not relevant to the question of how it should be invested."
Answer:
The fact that a life insurance policy is the source of the money is not relevant to the question of how it should be invested.
The proceeds should be invested exactly the same way as any other money: based on their individual goals and values, and in accordance with their overall financial plan.
Given that losing a spouse has such a tremendous impact on your life, emotions, and financial situation, I would recommend waiting a period of time before making any big decisions.
Go ahead and pay for a memorial service in accordance with the wishes of the deceased, and pay off any high-interest debt that you may have, but leave the rest of it in a savings account until you are past the initial shock and grief.
The opportunity cost of not investing that money for 6-12 months is much less significant than the possibility of making poor decisions while in a tough emotional state.
Be sure to hold the money in an FDIC-insured savings account, do not use the "retained asset" accounts that some insurers offer at a paltry interest rate without FDIC coverage.
On a related note, I would also suggest being thorough in your search for any other life insurance policies that your spouse may have had.
There are currently tens of billions of dollars being held by insurance companies who have barely made any effort to find rightful beneficiaries.
There are even some quite egregious examples such as insurance companies stopping payments for an annuity upon being notified of the annuitant's death, but then making no effort to find beneficiary for a life insurance policy that they also held.
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#36: Riley Adams (Young And The Invested)
"How a surviving spouse chooses to invest his or her life insurance proceeds varies by situation."
Answer:
How a surviving spouse chooses to invest his or her life insurance proceeds varies by situation.
Because no two people are the same, how you invest these proceeds should be tailored to their situation.
In the case of an elderly man or woman whose spouse has predeceased them, they are likely to need investments more geared toward producing income in retirement as opposed to capital appreciation.
Further, the assets underlying this income are also best invested in more conservative investments.
Doing so protects the principle invested and provides more certainty the money will be available should it be needed.
On the other hand, if the death occurs at a younger age during prime working years, the life insurance proceeds are best served by balancing the everyday needs of the surviving spouse and/or family with their long-term needs.
Keeping a portion sufficient to cover living expenses in liquid, conservative assets is important.
However, because the spouse passed away during his or her working years, money will need to be invested to account for the loss of income.
This will allow the surviving family members to continue accumulating assets necessary for a secure retirement.
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