When a loved one passes away, the last thing on your mind is money. But there are many benefits to taking out a life insurance policy as it can help families protect their futures and ease financial burdens in an unfortunate event like a death.
If you are the beneficiary of a life insurance policy, you must file a claim to receive any money. You have the choice to either receive the benefit as a lump-sum payment or spread it out over several years as an annuity.
Here’s how a life insurance pay-out could work towards your family’s financial security in several ways.
Retirement plan
If you’re married, your retirement plan is most likely to be built around the financial contributions of you and your spouse. A life insurance benefit can be used to help replace their future contributions.
Excess cash can be used to ensure maximum annual contributions to workplace plans, as well as contributions to an IRA.
Additional costs & finances
Along with final expenses for the deceased, you may encounter some unexpected costs. For example, the death of a stay-at-home parent may mean additional child-care, meals, and other household costs. The sum from a life insurance policy can be used to cover these costs to maintain your family’s quality of life and prevent financial burdens.
Funding your child’s education
Every parent wants to keep their children’s dreams of higher education on track. It may be useful to consider using part of the life insurance benefit to fund a university savings plan. There are different options available, including some that allow for tax advantages and have no income limitations.
Pay off debts
Eliminating the debts of a loved one can be a huge stress reliever, especially when you’re grieving. On top of managing your own debts, you may have a legal obligation to pay off debts of the deceased too.
If you served as a co-signer on a loan or jointly held debts, then you will become responsible for those debts. However, sometimes debts incurred by one spouse are not always the responsibility of the other spouse following a death.
Lifetime income stream
Instead of using a life insurance benefit all at once, consider spreading it out over several years with an annuity. This lessens the burden of having to manage a lump sum and makes your yearly income predictable. Annuities will also allow you to spread out annuity payments for the rest of your life.
Although nothing can replace the loss of a loved one, having access to these life insurance benefits can lessen financial worries during an already difficult time. It is important to explore your options to make sure you’re making the right financial moves to meet your own goals.
Professional advice
There are several articles and resources available about financial security which can help you get through your financial goals and plan for the future. However, the one thing that may really prove useful to you is some professional help.
This will help you get the best guidance that is required to be financially secure. If you don’t need any sort of professional advice, then you can seek help from your family or friends around you.
No matter what you choose to do, it is always important to consider talking to a financial advisor about how life insurance can fit into your personalised financial plan.
