Losing a spouse is one of life’s most challenging experiences, I know, I’ve been there. And in the midst of grief, navigating financial matters can feel completely overwhelming and something you just don’t want to deal with, but you have to. 

If you’re a beneficiary of your spouse’s life insurance policy, understanding your options and taking appropriate steps is crucial. I want to walk you through the important steps to take when you receive life insurance after the loss of your spouse.

1. Notify the Insurance Company

The first step after your spouse’s passing is to notify their life insurance company as soon as possible. Contact the insurance company directly or through your spouse’s employer if the policy was provided through their workplace benefits. Provide the necessary documentation, such as a death certificate, to initiate the claims process.

2. Understand the Policy Details

Once you’ve notified the insurance company, take the time to review the details of the life insurance policy. Understand the type of coverage, the benefit amount, and any additional riders or provisions included in the policy. This information will help you make informed decisions about how to proceed with the claim.

3. Explore Your Payout Options

Life insurance payouts typically come in the form of a lump sum payment, but there may be other options available depending on the policy. Some policies offer the choice of receiving the benefit as a series of payments over time or as an annuity. Consider you and your family’s financial needs and goals when deciding which payout option is most suitable for you.

4. Evaluate Your Financial Needs

Before making any decisions about how to use the life insurance proceeds, take stock of your financial situation and needs. Consider factors such as outstanding debts, ongoing living expenses (especially if your spouse was the primary bread winner), and future financial goals. Assessing your financial needs will help you determine the best use of the life insurance benefit to help secure your financial future.

5. Pay Off Debts and Expenses

One common use of life insurance proceeds is to pay off any outstanding debts or immediate expenses. This may include mortgage payments, credit card debt, medical bills, or funeral expenses. Prioritize high-interest debts and essential expenses to alleviate financial burdens during this challenging time. It’s best to speak with a financial planner before making any decisions to ensure you are suing the funds to your best advantage. 

6. Consider Tax Implications

Depending on the size of the life insurance benefit and your individual circumstances, there may be tax implications associated with the payout. Consult with a tax professional to understand any tax obligations or considerations related to the life insurance proceeds. Proper tax planning can help minimize tax liabilities and maximize the benefit for your financial needs.

7. Build an Emergency Fund

Consider setting aside a portion of the life insurance benefit to establish or replenish an emergency fund. An emergency fund can provide a financial safety net for further unexpected expenses and help cover living expenses during periods of financial uncertainty. Aim to save enough to cover three to six months’ worth of living expenses.

8. Review Your Financial Goals

Take the opportunity to review your long-term financial goals and aspirations. Consider whether your current financial plan needs adjustments based on your new circumstances. After the loss of a spouse, these goals may have changed. Emotionally, it may be hard to think of goals and next steps without the one person you planned your life with, and that’s normal, it’s ok. Seek help from friends, family, or a therapist if needed. And speak with a financial planner so you can explore opportunities for investing or saving for future goals, such as retirement, education expenses, or major purchases.

9. Make it Meaningful 

Perhaps you want the money to give back in some way. To honor your spouse. Knowing what matters to you and what mattered to them can help you make it meaningful. 

For me, when the life insurance came in, I knew I wanted to invest in my kids future. I know my kids would have their education paid for. My daughter, Katie, for example, chose a career path in the arts. We could have never afforded the school or program she is in now. We would have also likely pushed her toward something more practical. But she is doing what she loves. And this was her dad’s gift to her. 

10. Seek Professional Guidance

Navigating life insurance proceeds after the loss of a spouse can be complex, and seeking professional guidance can provide valuable support and assistance. Consider consulting with a financial advisor who understands your situation and can help you assess your financial needs, develop a plan, and help you make informed decisions about managing the life insurance benefit. 

And Most Importantly: Take Care of Yourself

Finally, remember to prioritize self-care and your emotional well-being during this challenging time. Losing a spouse is emotionally taxing, and it’s essential to seek support from friends, family, or a therapist if needed. Take time to grieve and process your emotions, and don’t hesitate to ask for help when you need it.

Losing a spouse and receiving life insurance proceeds is a significant transition that requires careful consideration and planning. Seek professional guidance when needed so you can make informed decisions about managing your financial future and helping to secure long-term stability for yourself and your loved ones.

Need further financial guidance?

Book a complimentary no obligation call and we can discuss a plan to help you move forward with confidence. 

Donna understands first hand that life has many transitions. Having been widowed suddenly at age 40, reinventing her career, and blending her current family, she understands these unique needs and can give you clarity for moving forward!

Donna (Sephton) Kendrick, CFP®, CDFA®

Donna Sephton Kendrick CFP® CDFA®, Financial planner, Owner and Founder Sephton Financial

This blog is designed to provide accurate and authoritative information on the subjects covered. It is not, however, intended to provide specific legal, tax, or other professional advice. For specific professional assistance, the services of an appropriate professional should be sought.

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