Life Insurance Payout: Managing Your Wife's Finances

Dealing with the loss of a spouse is a traumatic experience, and managing the life insurance payout can be overwhelming. The first step is to find a financial expert, such as a Certified Financial Planner (CFP), who can guide you through the process and help you make rational decisions. It is recommended to hold on to the money for several months before making any significant financial moves. This money can be used to cover immediate expenses, such as funeral costs, medical bills, and living expenses. It is also suggested to put the payout in a high-yield savings account to earn interest. If there is a remaining balance, it is best to invest it wisely for the future or save it for retirement.

Seek expert advice

Dealing with the loss of a loved one is an extremely difficult time, and managing a life insurance payout on top of that can feel overwhelming. Seeking expert advice is a sensible way to ensure the money is managed effectively.

Firstly, it is important to find a financial advisor who is qualified and skilled in handling life insurance proceeds. A Certified Financial Planner (CFP) will be able to help you make initial decisions about saving and investing, as well as setting up a budget. A CFP can also advise on how much of the money you need to keep liquid to cover monthly expenses. It is recommended to find a CFP through the CFP Board of Standards.

A financial advisor can also help you to avoid making costly mistakes. For example, they can advise on which debts to pay off first, and how much to keep in liquid assets. They can also advise on tax liabilities, and how to avoid paying unnecessary tax on the interest earned on the payout.

A financial advisor can also help you to assess your situation and take care of immediate needs, such as living expenses, medical bills, and funeral costs. They can also advise on whether you are entitled to any social security benefits.

If you have children, a financial advisor can help you to plan for their future, including their education. They can also advise on retirement funds and how to manage any existing investments.

It is important to find a financial advisor who can relate to your situation and who has experience in helping people in similar situations. Take the time to interview several advisors to ensure you find the right one for your circumstances.

Cover immediate expenses

Covering immediate expenses is a crucial aspect of managing a life insurance payout, and there are several steps your wife can take to ensure financial stability during this challenging time. Here are some detailed instructions for covering immediate expenses:

• Funeral and Burial Expenses: The average funeral costs around $8,000, and your wife can use a portion of the life insurance payout to cover these immediate expenses, including burial or cremation costs, caskets, urns, and other funerary expenses.
• Medical Bills: Final medical expenses can be significant. Depending on the state, your wife may be responsible for any outstanding medical bills. The life insurance payout can be used to settle these costs and any future medical bills.
• Debt Repayment: Shared debts, such as mortgages, student loans, or other co-signed loans, can be repaid using the life insurance payout. This will help alleviate the financial burden and provide your wife with some financial stability.
• Monthly Bills and Everyday Expenses: The life insurance payout can cover monthly expenses such as groceries, utilities, rent, and other household bills. This will allow your wife to focus on her well-being and everyday needs without immediate financial strain.
• Emergency Fund: It is recommended to set aside a portion of the life insurance payout into a high-yield savings account as an emergency fund. This will provide your wife with a financial cushion for unexpected expenses and give her time to adjust to her new financial situation.
• Seek Financial Advice: Dealing with a lump-sum life insurance payout can be overwhelming. Your wife can benefit from seeking advice from a certified financial planner or advisor. They can provide personalized strategies and help her make informed decisions about managing the payout, including covering immediate expenses and planning for the future.

Plan for the future

Receiving a life insurance payout can be overwhelming, especially if you are grieving the loss of a loved one. It is important to take the time to understand the best ways to manage a life insurance payout. Here are some tips to help you plan for the future:

• Don't rush into making big financial decisions. It is recommended to hold on to the money for several months and make rational, educated decisions.
• Consider putting the payout in a high-yield savings account to earn interest on the balance. This will allow you to cover bills and other pressing financial needs in the months after your loss.
• Build an emergency fund. Financial professionals typically recommend having enough in an emergency fund to cover three to six months' worth of expenses.
• Pay off any high-interest debt, such as credit card debt. This will free up more cash in your budget to cover other bills and expenses.
• Find a trusted financial advisor to help you invest the payout wisely. Consider working with a fiduciary, a professional who is legally and ethically bound to act in your best interests.
• If you have children, put a portion of the payout into a 529 college savings account. The earnings on these investments are tax-deferred, and withdrawals won't be taxed as long as they are used for qualifying education expenses.
• Save and invest any remaining money for the future. Work with a financial professional to create a personalized plan that fits your needs and goals.

Pay off debt

If your wife has received a life insurance payout, it's important that she doesn't rush into any big financial decisions. It's recommended that she holds onto the money for several months before making any significant choices about what to do with it.

One of the smartest things your wife can do with the life insurance payout is to pay off any debts. This will free up more cash in her budget each month to cover other bills and expenses. If the debt is high-interest, such as credit card debt, it's even more important that she pays it off. By doing so, she'll free up more of her budget each month to put towards other expenses.

If your wife has a mortgage, she may want to consider paying this off with the life insurance money. This will depend on her situation and her financial goals. If the thought of a big monthly mortgage payment is keeping her awake at night, it might be a good idea for her to use the money to pay off the mortgage. However, it's worth considering the trade-offs of other approaches, such as savings accounts or investment vehicles. A financial professional can help her to decide what's best for her situation.

If your wife has any shared debts, such as student loans, the life insurance payout can be used to pay off the remaining balance. This will prevent the responsibility for the debt from falling on any co-signers.

It's important to note that your wife should not rush to pay off all her debts. She should be discriminating about which debts to pay off first and seek the advice of a financial professional to ensure she's making the best decisions for her situation.

Be cautious with investments

While it may be tempting to invest the life insurance payout, it is important to exercise caution and seek expert advice. Legally, your wife can use the money any way she chooses, but it is always a good idea to consult a financial advisor or planner, especially one who is a fiduciary and is therefore legally and ethically bound to act in her best interests.

A financial planner can help your wife figure out how to invest the money wisely and create a plan that will ensure the payout covers her current and future needs. For example, she may want to pay off any high-interest debt, such as credit card debt, and build an emergency fund that will cover three to six months' worth of expenses.

If your wife is not well-versed in investing, it is probably best to avoid riskier investments. While some alternative investments can have higher gains than standard investments, they can also be volatile. Cryptocurrency, for example, has gone mainstream and may not feel very alternative anymore. Fine wine is another alternative investment that has been known to have high gains.

Your wife should also be cautious about investing in the stock market. While growth stocks tend to provide the best return on investment over time, they can also be risky. It is important to balance how much risk she is willing to tolerate.

If your wife is older and in retirement, an annuity may be a good option. This provides a guaranteed income stream and takes away the risk of losing money in the stock market. However, there are usually fees associated with this option, and if she dies before collecting the full benefit, the insurance company will keep the remainder.

Frequently asked questions