Coping with the loss of a spouse can make it difficult to focus on matters such as life insurance proceeds and managing your finances. The unfortunate truth is, many who experience such a loss make common mistakes that negate the positive impact that the proceeds are intended to offer. If you or a family member recently received life insurance proceeds, these tips may help you better decide what to do with life insurance proceeds after a spouse dies.
1 – Understand Tax Liabilities
Before you start spending life insurance proceeds and any other funds received from a spouse’s estate, it is important to understand potential tax liabilities. Speak with your accountant about estimated taxes. Putting aside funds for taxes (both federal and state) should be the first priority when deciding what to do with life insurance proceeds after a spouse dies.
2 – Pay Off Debts
The second consideration involves debts. Think about what debts you should or should not pay right away. Normally, it’s a good idea to pay off high interest debts such as credit cards. The decision to pay off any mortgages is a little more involved. How much you have available in funds, what is owed on the mortgage, how much equity is in the home, the interest rate on the loan, sources of income, and whether you have your own life insurance policy are all factors in this decision. It is best to speak with a financial advisor to evaluate your finances before deciding whether to pay off mortgages.
3 – Estimate Living Needs
Consulting with a financial advisor can also be helpful in understanding your assets, income, living expenses, and overall cash flow. Receiving life insurance proceeds provides the opportunity to better plan for current and future needs. It can ensure financial stability and a better quality of life, if managed properly. If financial analysis is not your strength, it is even more important to consult with experts.
4 – Invest Wisely
If you decide to invest funds, do so wisely. Consider whether your funds will remain fluid or locked in for a certain length of time. Weigh the risk for different investment options. Look out for hidden fees and charges for accessing your funds. Investing can be a great way to increase your funds, but some investments are better than others. Educating yourself on the pros and cons will help you make better investment decisions.
5 – Enjoy the Funds Wisely
In deciding what to do with life insurance proceeds after a spouse dies, many look to find some joy at such a difficult time. This may include vacations and other splurges. Spending time with family and enjoying life is certainly important. Just be sure to take care of the items we’ve listed above first. This will help avoid overspending and creating unnecessary financial hardships later.
Summary of What to Do With Life Insurance Proceeds After a Spouse Dies
We hope that the above tips on what to do with life insurance proceeds after a spouse dies will help you make better financial decisions during a difficult and emotional time in your life. By understanding what you should do with life insurance funds, you can avoid common and detrimental mistakes. Don’t forget to also review your estate plan after the death of a spouse. Your estate plan will need certain updates to protect your assets and your heirs.