Suffering the untimely death of a spouse or partner is among the greatest emotional (and often financial) blows one can endure in his or her lifetime. If you've found yourself in this situation and your partner had the foresight to plan for this unthinkable eventuality by the purchase of a life insurance policy, you may now be wondering what to do. Making major financial decisions shortly after a catastrophic life event can sometimes be unwise, but letting the money sit in a checking account may strike you as unsafe. What should you do with this money? Read on to learn more about some of the steps you'll want to take after receiving a life insurance settlement following the death of your spouse.
Where should your life insurance money first go?
It's likely the funds you receive from the life insurance policy will either be wired to or deposited in your primary checking account. If you're accustomed to seeing a balance of only a few hundred or thousand dollars in this account, it can be quite a shock. Your best first step is usually to do a rough calculation of how much you'll need to cover the expenses you've recently accrued (like funeral and burial costs, travel expenses for family members, or a drop in income if your employer doesn't offer paid bereavement leave), then transfer the rest to an online savings account.
Keeping this account online rather than at a brick-and-mortar branch in your area can allow you a couple of days between the time a transfer is initiated and received, preventing you from making impulse purchases or falling victim to scam artists who prey on the recently bereaved. You'll then have some breathing room to make long-range financial plans without worrying about your debit card being stolen and these funds becoming easily accessible to a thief.
What should your next steps be?
The decision of what to do with life insurance proceeds can be a highly individual one, and often depends on not only the amount of the settlement, but your other financial accounts, the ages of any children still at home, and even your own ability to earn an income. However, there are a few things you should be able to comfortably do with these proceeds without worrying about jeopardizing your finances.
First, you'll want to pay off any high-interest debt, like credit cards, personal loans, or high-interest auto loans. If this money is sitting in a savings account, it's likely earning little to no interest -- so paying double-digit interest rates on debt that could be eliminated with the settlement makes sense. Eliminating this debt can also improve your credit score, making lower-interest debt more available to you if you later decide to get another credit card or buy a new car.
You may also want to consider using some funds to make improvements to your home -- especially if you're thinking of downsizing soon. Making your home more market-ready can help you fetch a higher price when you do sell, and you'll be able to avoid the anxiety of wondering who will help you with home repairs now that your spouse is gone.
For more information about life insurance settlements, contact a company like Trust Life Settlements.