When your spouse passes away there are suddenly so many changes happening. You are grieving, trying to adjust to life without them, being pulled into a million different directions to handle the arrangements, the paperwork, and everything else that comes with this loss. It can be very overwhelming.
The biggest concern we often hear people talk about is money. We hear stories about people who didn’t have life insurance and now their loved ones are in financial ruin trying to handle everything. But what about the other side of the coin? What happens when your loved one did have life insurance? The assumption is that your problems are magically fixed and you would now have all the money to solve everything and no stress. This is not the case.
When a loved one passes away, especially if they had life insurance, you suddenly have money coming from all directions. Typically, if you are the estate executor, you would now have their bank account contents, life insurance payouts, funds from family and friends, and more. How do you handle it all?
The first thing to do would be to find an expert. You may have a family member or friend who has the credentials to assist you, if you don’t you may want to find a financial advisor or accountant to help you. This is something you should do immediately! The expert is able to help you more before you spend a ton of money and make financial mistakes. They can help you with initial decisions about spending, saving, investing, and debt and help to set up a budget for the long term.
Once you have your expert lined up, you should focus on immediate needs. Look at the items that need to be paid now and those that can wait. Examples of immediate needs include funeral arrangements, living expenses, medical bills, and social security.
It is also important to note here if you have dependents under 18 living with you at home, they are entitled to social security survivor’s benefits. If you are over 60, you may be entitled to widow’s benefits from social security as well.
Once you have handled your immediate needs, look at some other options for life insurance funds. These could include the following:
- Pay off high-interest credit card debt.
- Paying off your debt can help to alleviate financial burdens later on. If any of your credit cards are only in your spouse’s name, these may need to be paid off immediately.
- Determine your housing reality.
- You may need to sell your home if you cannot sustain living there with your new income level. If you can sustain living there, consider paying the home off.
- Review retirement funds and saving needs.
- Make sure you have the funds to sustain your life after retirement. You may also want to consider college funds for your children or any other savings investments you will need.
- Investigate your tax liability.
- Typically life insurance proceeds are not subject to federal income tax. However, you will be subject to taxes on any income that money generates. Make sure you can pay those taxes.
The above are all great examples of what you should do with leftover life insurance funds. Be careful not to go on a spending spree and put yourself into a tough spot. Having that expert, mentioned earlier, will help you to determine the best steps for your needs and future.
Remember, your loved one purchased life insurance to make this time easier on you. Let them do that by taking the right steps.