Important Considerations for a Widow Thinking About Life Insurance
Proceeds from a life insurance policy can provide comfort to a loved one’s survivors from both a financial and emotional standpoint. The funds received from life insurance can help alleviate stress for a family as they mourn their loss.
As much as the sudden influx of a large sum of money can be a source of comfort, it can also present some challenges as decisions on what to do with the funds need to be made. Should you save, spend, or invest those dollars? The short answer is – it depends. Here are some things to consider:
What other sources of income do you have to pay your obligations each month? Do you need the proceeds to pay the bills and fund your lifestyle? If that is the case, most advisors guide clients to have 3-6 months of spending available to them in cash, money market, or some other type of conservative and liquid investment.
If you are in the other camp and do not need the money for monthly cash flow, you may want to speak with a professional about investing the proceeds in stocks, bonds, or other types of investments. Here is where getting good advice is important so you can make informed decisions that take into consideration taxes, estate planning, and other goals you want to achieve.
Many times, life insurance is taken out to cover debts such as mortgages or other loans should one spouse pass away. Although that may have been the original intention when the life insurance policy was first applied for, it may not always make good financial sense to write that big check to the mortgage company after your spouse passes away.
Some things to consider are:
- What is the interest rate of the debt? If it is a fixed low rate, it may make more sense to invest in a place that may give you higher returns than you are paying.
- If a mortgage payoff is being considered, how long are you planning on staying at that home? Can you afford to stay at the home, or does it make more sense to move? Decisions on where you will live can help determine how to spend the proceeds.
- Does having to write a check each month to pay off the debt cause you to stay awake at night? Would you feel better just knowing you are living debt-free? If so, it may make sense to pay the debt off and put your mind at ease.
Fund a Goal
Although the loss of a loved one can derail some of the goals you had together with that person, there may come a time where you are ready to move ahead and create goals and dreams of your own. These goals may include retiring in a few years, traveling the world, or putting aside money for the next generation. The proceeds from a life insurance policy may help you achieve these goals.
In light of all these decisions, the most important one is to give yourself time to grieve and do not feel pressure to make these decisions right away. When you are ready, make sure you reach out to professionals who know your specific situation and help you make the right decisions for you and your family.
Jenny is a Wealth Manager at BDF. She uses her background as a teacher to help individuals and families feel comfortable with their investments and planning. She also works on the firm’s Divorce Practice Group which helps divorcing individuals navigate the process and works closely with them afterwards to help them build a full life.