Evaluating Life Insurance Proceeds After a Loss of a Loved One:Important Things to Keep in Mind

If you have recently lost a loved one, the last thing on your mind is dealing with your household finances. Many financial advisors will recommend individuals who have unexpectedly lost their spouse not to make any large, rash decisions quickly afterwards because their frame of mind may be different than it would be with time.

Grief is difficult to navigate, so it is important to have the right resources and information on your side when the time does come to make financial decisions regarding an unexpected loss in the family. Amongst the few decisions that may need more immediate attention, and with the proper due diligence, is deciding what to do with assets from a life insurance policy. 

There are a variety of considerations to take into account when deciding on how to utilize the funds from a loved one’s policy. Individuals who may have never paid attention to the household finances can be suddenly thrown into the driver’s seat and tasked with making major decisions that can have a major impact on the future of their finances. So, let’s look at some important items to factor into your decision when determining what may work best for you and your family. 

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Liabilities and Debt

The main focus of many life insurance policies is to replace any lost income in the case of an unexpected death. Furthermore, life insurance policies are typically chosen based on the debt and liabilities an individual is expected to hold following an unexpected loss. 

Paying off your mortgage can be a huge weight lifted from your family’s shoulders in an unforeseen event. Especially if the household is forced into a single income stream. 

Beyond a mortgage payment, other liabilities that life insurance assets can be used for can include vehicle loans or other general liabilities such as credit cards. 

Education Costs

In the event of an unexpected loss, it is crucial to begin thinking about the future, especially as it pertains to your children. Financing an entire household on one income stream makes it extremely difficult to put money aside for an education fund. Whether it is your children or grandchildren, life insurance policies oftentimes are in place to ensure the ability and opportunity to feasibly acquire an education. 

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If this is a goal of yours, your financial advisor should guide you to utilizing the appropriate method for education funding. Certain accounts can have tax benefits that help your money stretch further when the time comes to pay for the education. 

In many cases a 529 account will be an excellent investment vehicle for education savings. 529 accounts have tax benefits that will allow for the money in the account to be used tax free if it is utilized for education purposes. If the funds in the account are not used for educational purposes, they still can have other uses and are crucial to be considered when making this decision. 

General Living Expenses

Everyday expenses such as food, utilities, rent, and gas can take up huge portions of a single income stream. Depending on your specific situation and income, you may need to utilize life insurance proceeds to fund daily life within your household. 

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If your household is heavily reliant on these funds for day-to-day life, it may be wise to invest the funds and implement an appropriate and tax efficient withdrawal strategy. 

Every Situation is Unique

If this is your first time handling your household finances, do not be overwhelmed by the daunting and complex tasks set forth in front of you, and instead gain knowledge on the subjects and speak with experts. 

Having the right financial advisor by your side through one of the hardest times of your life can make the complex tasks much simpler. 

Fragasso Financial Advisors, Pittsburgh financial advisors, has written a new blog post on this topic, and they will help walk you through every step of the decision process. They have been guiding the investment and financial planning goals for families for decades, and they have the knowledge and resources to ensure that the decision you make is what is best for you and your family. 

Investment advice offered by investment advisor representatives through Fragasso Financial Advisors, a registered investment advisor.

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