Along with the passing of a loved one comes the countless arduous and difficult decisions that one must make.
Of course, “what do I do with this sudden and large amount of money” may not be the first thing that pops to mind. But to many people, this is a concern that is real and mind-boggling.
As the beneficiary, you may be wondering what to do with this money?
Should you use it to pay off debts? Start investing? Prepare for your child’s education fund? For the policyholder, their main concern was to provide you with financial freedom with the life insurance payout.
Don’t be rash when making decisions
One may feel like they have to make a decision immediately but truth is, one doesn’t. Usually, the first thing that comes to mind is to use the insurance payout to repay loans and all outstanding debts.
However, what you should consider doing is to continue your day to day activities. Keep paying towards your housing loans. Maintain your monthly utility bills payment. Stay with friends or family members should you wish to. Take your time to grieve.
Just like any major decisions in life, don't jump into one without taking time to think through especially while you are distraught and grieving.
Take care of immediate needs first
The reason why the insurance policyholder purchase the policy in the first place is to ensure that their family members would be able to continue maintaining a comfortable standard of living in the event where they are no longer around. They won't want their family to be further disrupted and affected by their absence.
It is likely that the beneficiary is dependent on the policyholder’s income and with the passing of the policyholder, that income stream stops. Before you consider paying off all your debts, focus on the daily needs of your family.
Keep your children in the same school. Stay at your current house. Continue paying for your phone bills, utilities, groceries and any other monthly expenses.
Only consider using your life insurance payout for debt repayments or investments after you have covered your immediate needs.
Don’t be afraid to ask for help
When tragedy strikes, you’ll be humbled by the outpouring offers for support. Reach out for help from your siblings, children or close friends can help to relive tremendous amount of burden. At the same time, speak to a financial advisor as they will be able to provide you with professional advice on how to strategically utilise the insurance payout in both the short and long term.
If an opportunity arise whereby you could work with professionals or financially savvy individuals who could help you make informed decisions, consider taking it up. Once again, give yourself time and space to vet the right person before making any major decisions.
Paying off Debts
Once you are ready to start utilising the insurance payouts, you can consider paying off your debts, starting with the ones that have higher interest rates.
If you have high interest debts like credit card bills, you should consider paying off these accounts to avoid sinking deeper into debt. For debts with lower interest such as housing and car loan, assess the total balance and monthly repayment plan. If the un-repaid housing loan takes up the total portion of the insurance payout, you will need to consider the costs of staying in the house for a long period and if it will affect your future financial situation.
Paying off the mortgage
One of the major decision a widow or widower need to decide is whether they will be moving out of their current house. The answer isn’t a simple, “Is the insurance payout sufficient to cover the mortgage? Then yes.” One needs to take into consideration the maintenance, paying for utilities and daily expenses which might be too much of a burden for one. Downsizing the house might be less taxing over time.
Before one decides to use the insurance payout to repay mortgage, they should consider sticking to monthly repayment firs. This is because should they decide to sell their house when they are feeling better they would still have financial cushion from the life insurance policy to get a new home.
Investing the life insurance payment
If you have paid off your debts and does not require the life insurance payout to replace your income, consider investing the payout so that it can grow in value.
There are various options of investing, for example, you can place the funds in an investment account that you already have. However, do remember that risks are always involved in investments and past performance does not guarantee future returns.
If investment in the stock market is not your cup of tea, there are alternatives to help you grow your cash. As always, do your research, consult financial professional before you actually invest your money.
Spoil yourself
One can consider setting aside a small amount of money for a short holiday or an occasion to cheer up the family and honour the memory of the policyholder.
Your loved one named you as the beneficiary to the policy because they wanted to ease the burden of your loss and ensure that your financial future is secured. Although it is not easy, they want to minimise the impact of the transition as much as possible.
It might be overwhelming when handling an insurance payout but don't find yourself paralysed with fear. By taking the time to cope with the loss, creating a game plan, and seeking the advice of qualified professionals, you can ensure that the life insurance policy your loved one purchased is put to good use.