Large Life Insurance Check: Depositing And Managing Your Payout

Receiving a large life insurance check can be overwhelming, especially if you are mourning the loss of a loved one. The first step is to verify that you are the beneficiary of the policy. If the check is made out to the deceased, you will need to notify the sender and ask them to reissue the check in your name. Once you have the check, you can deposit it like any other, although you may need to speak to a banker or financial advisor for authorization and expect a longer wait for the funds to clear. You may also want to consider putting the payout in a high-yield savings account or investing it.

Seek financial advice

Receiving a large sum of money, such as a life insurance payout, can be overwhelming. It is important to take time to understand the best ways to manage this money. Here are some reasons why you should seek financial advice:

• Don't rush into big financial decisions: It is recommended to hold on to the money for several months before making any significant financial decisions. Letting the cash sit in your account can help you make a rational, educated decision rather than an emotional one.
• Consider a high-yield savings account: Instead of keeping the money in a checking account, consider putting it in a high-yield savings account to earn interest on the balance. If the payout is large, you might need to spread the money across several savings accounts, as Federal Deposit Insurance Corporation (FDIC) deposit insurance covers only $250,000 per depositor per FDIC-insured bank.
• Build an emergency fund: Your first priority should be to use some of the life insurance payout to build an emergency fund. Financial professionals typically recommend having enough in an emergency fund to cover three to six months' worth of expenses. This will give you a cash reserve to fall back on in case of unexpected situations.
• Pay off high-interest debt: If you have high-interest debt, such as credit card debt, you could use the life insurance payout to eliminate it. By paying off what you owe, you will free up more cash in your budget each month to cover other expenses.
• Seek advice on paying off your mortgage: Whether or not you should use the payout to pay off your mortgage depends on your situation. If the thought of a large monthly payment is keeping you up at night, paying off your mortgage might be a good idea. However, there are also trade-offs to consider, such as savings accounts or investment vehicles. A financial professional can help you navigate these decisions.
• Find a trusted financial advisor: Figuring out how to invest a large sum of money can be challenging on your own. Hiring a financial planner can provide you with a rational third party to help you make sound financial decisions. Look for a fiduciary financial advisor, who is legally and ethically bound to act in your best interests. Consider working with a planner who specializes in helping widows or widowers if that is relevant to your situation.
• Understand the different types of life insurance: There are several types of life insurance to consider, each catering to different needs and preferences. Term life insurance covers you for a specific period, usually 10, 20, or 30 years, and is known for its affordability and simplicity. Whole life insurance offers lifetime coverage and includes a cash value component that grows over time but is typically more expensive. Universal life insurance provides lifetime coverage with more flexibility than whole life insurance, allowing you to adjust premiums and death benefits. Variable life insurance allows you to invest the policy's cash value in various accounts with different risk and return characteristics. Indexed universal life insurance ties the cash value's growth to a financial index.

Notify the bank

If you are about to receive a large life insurance payout, it's important to notify your bank in advance. While it may not always be necessary, it can help to ensure the process of depositing the check goes smoothly. Here are some detailed steps and considerations to keep in mind:

Contact Your Bank:

Get in touch with your bank and inform them that you will be receiving a large life insurance check. Provide them with details such as the expected amount and the timeframe for receiving the check. This will allow the bank to prepare for the transaction and ensure they have the necessary funds available.

Understand Bank Policies:

Different banks may have varying policies and procedures for handling large deposits. Ask about any specific requirements or documentation you need to provide. For example, some banks may require additional identification or proof of the source of funds. Understanding these policies in advance will help you be better prepared for the deposit.

Inquire About Hold Times:

Large deposits often take longer to process and clear than smaller amounts. Ask your bank about their typical hold times for large checks. This will give you an idea of how long you will need to wait before having full access to the funds. It's important to plan accordingly, especially if you have immediate financial needs.

Discuss Account Options:

Depending on the amount of the life insurance payout, you may need to consider spreading the funds across multiple accounts. Federal Deposit Insurance Corporation (FDIC) deposit insurance covers up to $250,000 per depositor, per FDIC-insured bank. If your payout exceeds this amount, you may want to open additional accounts or even consider different financial institutions to ensure your funds are fully protected.

Explore Investment Options:

When depositing a large sum, your bank may offer various investment options or financial products. These could include high-yield savings accounts, certificates of deposit (CDs), or other investment opportunities. While you may choose to seek advice from a financial advisor, understanding the options presented by your bank can help you make informed decisions about how to manage your payout.

Be Aware of Security:

Depositing a large life insurance check may require additional security measures. Your bank may have specific procedures in place to ensure the safety of the transaction. Be prepared to follow their protocols and work closely with their security personnel if necessary.

Remember, while notifying your bank in advance is a prudent step, the process may vary depending on your specific financial institution and the amount of the payout. Always consult with your bank directly to understand their unique requirements and recommendations for handling large deposits.

Understand probate

Probate is the legal process of dividing and transferring ownership of inherited assets in the case of someone's death. In probate, a court official reviews the estate, seeks to follow the deceased's will (if there is one), and settles any outstanding debt while distributing assets to beneficiaries. Probate laws vary by state, but the process is generally the simplest when there is a comprehensive will or an irrevocable trust, and no dispute among potential heirs.

In many cases, an executor (such as a family member) is chosen or appointed to handle the last affairs. This person is responsible for notifying heirs and creditors of the death, taking possession of the deceased individual's assets, paying funeral expenses, taxes, and debts, transferring remaining assets to the heirs, and notifying the court of its actions. Being an executor can be like having a second job and can take months or even years.

If there is no will, the court appoints an administrator and directs them on the payment of debts and distribution of assets as determined by state law.

Life insurance proceeds are typically considered non-probate assets. This means the funds are directly payable to the designated beneficiaries upon the policyholder's death, without the need for court intervention. However, if there is no specified beneficiary on the life insurance policy when the owner dies, the asset goes to probate.

If life insurance proceeds aren't paid directly to beneficiaries, the asset may be subject to estate tax following probate decisions if the overall estate exceeds tax-free thresholds.

Provide certified documents

To deposit a large life insurance check, you will need to provide certified documents to the insurance company. This is a crucial step in the process of claiming your life insurance benefit. Here is a detailed guide on providing certified documents:

Understanding the Required Documents:

Before you begin, it's important to know which documents are typically required when filing a life insurance claim. These may include:

• A certified copy of the death certificate: This document serves as proof of death and is usually required by the insurance company to initiate the claim process. You can obtain a copy of the death certificate from the funeral home, medical staff who confirmed the death, or your local vital records office.
• The life insurance policy document: This document contains important information such as beneficiary names and the death benefit amount. You can request a copy from the insurance company or the insured person's financial advisor.
• A claim form: This is typically provided by the insurance company and may be referred to as a "request for benefits." It will require information such as the policyholder's name, policy number, cause of death, and your relationship to the policyholder.

Obtaining Certified Copies:

For certain documents, such as the death certificate, you will need to provide a certified copy. Here's what you need to know about obtaining certified copies:

• Certified copies are typically issued by government offices or authorized entities, such as the vital records office in your local area.
• The process for obtaining certified copies may vary depending on your location. In some cases, you may be able to request them in person, by mail, or online.
• There may be a small fee associated with obtaining certified copies. This fee covers the cost of the service and helps maintain the accuracy and security of the records.
• Keep in mind that certified copies are different from regular photocopies. They are official copies that have been verified and certified as true and accurate by the issuing entity.

Preparing and Submitting Documents:

Once you have gathered all the required documents, including any necessary certified copies, here's what you need to do:

• Make sure you have clear and legible copies of all the documents. If any information is unclear or difficult to read, it may cause delays in processing your claim.
• Review the claim form thoroughly and fill it out completely and accurately. Incomplete or incorrect information can also lead to delays.
• If you have any questions or concerns about the documents or the claim process, don't hesitate to contact the insurance company. They should be able to provide you with guidance and support.
• Submit the completed claim form and supporting documents to the insurance company. You may be able to submit them by mail, online, or in person, depending on the company's procedures.
• Keep records of your submissions: Make copies of everything you submit and store them securely. This will help protect you in case there are any discrepancies or issues during the claims process.

Remember that the claims process can be emotionally challenging, especially while grieving the loss of a loved one. Take your time, gather the necessary certified documents, and don't hesitate to seek guidance from the insurance company or a trusted financial advisor if needed.

Choose a payment option

There are several options available to you when it comes to receiving your life insurance payout. It is important to understand these options so that you can choose the right one for your situation. Here are some of the most common payment options:

• Lump-sum payout: This is the most common option, where the beneficiary receives the entire death benefit at once. This option gives you the most flexibility, but receiving such a large amount of money can be overwhelming. If you choose this option, you may need to spread the money across several accounts, as Federal Deposit Insurance will only cover up to $250,000 per depositor, per FDIC-insured bank.
• Retained asset account: With this option, you can leave the payout with the insurance company in an interest-bearing account. The insurance company will provide you with a checkbook to access the cash, and they may also offer an interest income option. The benefit of this option is that you don't have to worry about FDIC insurance limits, as the insurance company will protect the entire amount. However, the interest rate offered by the insurer may not be as high as what you could get with a high-yield savings account or by investing the money. Additionally, the interest earned on the account will be taxable.
• Convert to annuity: This option allows you to receive guaranteed payments for the rest of your life. The amount of the payment will be based on your age at the time of the claim and the amount of the death benefit. Lifetime income can give you peace of mind and ensure you don't blow through a large lump sum. You could also get more than the policy's death benefit amount if you live longer than expected. However, the younger you are, the smaller the payout amounts will be, and there may be fees or surrender charges associated with this option. If you die before collecting the full benefit, the insurance company will keep the remaining amount.
• Life income with period certain: This option is similar to the annuity but includes a guaranteed payout period. For example, if you choose a 10-year period and die in year three, your beneficiaries will continue to receive payments for the remaining seven years. The payments will be lower than with a traditional life income option to compensate for the guaranteed payout period.
• Specific income payout: This option allows you to receive the payout in installments of your choosing. For example, you could choose to receive $25,000 per year for 10 years from a $250,000 life insurance payout. This option gives you more flexibility than a traditional life income option, but you still have less flexibility than with a lump-sum payout. Any interest earned on the installments will be taxable.

When deciding which payment option to choose, consider your age, financial needs, and spending habits. If you are younger, the lump-sum option may be more appealing due to your changing financial needs over time. On the other hand, if you are older and in retirement, an annuity option can provide a guaranteed income stream without the risk of losing money in the stock market.

Frequently asked questions