What do you do when you receive a payout from a loved one's life insurance policy? Not having a plan in place on how to allocate the money can easily lead to it being spent in all the wrong ways.
But where do you start when it comes to making sure that it is spent on things that can help you in the long run?
How does a life insurance payout work?
When you place a claim for a life insurance policy there are a series of steps that take place to ensure that the payout is made to the right beneficiaries. What this means is that an insurer will carry out a process to ensure that the premiums were up to date, that there was no foul play regarding the death of the policy holder and the tracking of the right beneficiaries. This can take anything between a month or three months.
What to do with a life insurance payout?
It is preferable if the policyholder discusses with their beneficiaries how they would like the payout to be spent before they die. Another option to have is to have a legally binding will that will give you control on the specifics. Some ideas of what the payout can be spent on are:
Paying off the mortgage. Most people purchase property to leave a lasting legacy to the people they love. Being able to pay off a mortgage sooner is one less financial burden that your loved ones have to face, especially if you were the main breadwinner.
Using it towards debt. Life insurance is an investment that is made to secure the financial future of our loved ones. It also means that it can be used to cancel out any financial burdens such as debt that could hinder their progress. They can use the payout to take care of any debt you may have accumulated.
Investing in your child’s future. Planning long term is also one of the benefits that come with having a life insurance policy. It can be used towards your or your child's educational future, starting a business that you have been planning on starting or even ensuring that your child is set up for life after high school or university.
Securing your financial future. There are many ways in which you can split the payout to ensure that your financial future continues to be secured years after you or your loved one has passed on.
Investing, creating a savings or emergency account, and taking out financial products that help boost your safety net is important. Therefore, speaking to a financial advisor can be useful when it comes to planning your future so that your money works for you instead of the other way around.
Donating it to a charity. You have the option to donate some or all of the payout towards a charity of your choice. This option can work for people who do not have any dependents or family members to add as beneficiaries.
Maintaining your lifestyle. Losing a breadwinner is never easy financially. Having a payout that can help you take care of the daily expenses and maintaining the lifestyle that you have come to know is one of the benefits that come with having a life insurance policy in place.