When a loved one passes away, you may be heir to a life insurance death benefit. The money you receive may be a sizable windfall and is generally not considered taxable income. On the other hand, your life circumstances may be significantly changed because of your loss. It’s important to stop and think before spending your benefit.
Replace Lost Income
If the deceased person is a spouse or domestic partner, you may be losing a substantial part of your regular income immediately and for the foreseeable future. A life insurance payout can help to replace some of that income if you invest it wisely.
A financial advisor can recommend a plan that’s suitable for your stage in life and your specific situation. People with small children may opt for a longer-term investment while people at retirement age will want to invest in a low-risk product they can draw from. Some insurance and investment companies may offer annuities or structured payment plans.
Cover Funeral and Burial Expenses
Insurance benefits are often used to pay for funerals and burial expenses, which can run into thousands of dollars, depending on your personal choices. If you choose a traditional burial, your costs may include a cemetery plot, a vault and casket, preparation services, and the use of the funeral chapel. Additionally, you may also consider cremation services. The cremation process is less expensive than burial, so you might want to consider this. In addition, those who prefer traditional burial may consider placing a grave marker for their loved ones.
It may take a few weeks before you receive your payment from the insurance company. If the funeral home wants immediate payment, you may consider holding a memorial first and a burial service later on. You can conduct a memorial service without the casket present.
Pay Off Debts
You will be required to pay off the deceased person’s debts in order to settle probate, and you can use the insurance benefit to do that. However, for jointly-owned accounts or property, the debt will automatically transfer to the spouse or partner.
In this case, it’s also a good idea to pay off the debt using the insurance payout. Paying off debt is like putting money in your pocket. You won’t have to worry about monthly payments or accruing interest.
Grief can often cloud judgment and lead to impulsive decisions, so take your time and talk to a professional about the best options for your specific life situation. With careful planning, you can make the most of the insurance benefits you receive.
Check out this article on how to take care of your teeth after getting braces!
