Don’t Blow Your Life Insurance Money
As a life insurance agent I spend most of my time on the front end of life insurance. Explaining benefits, features, and the various ways life insurance can be used throughout your life as a hedge against uncertainty. If you purchased the correct policy, you’re basically creating your own personal bank for your future self. With that said, I’d like to take an opportunity to talk about what happens when the Insured (the person the policy is on) passes away.
From my perspective, long are the days of “furthering the family name” for the average American family. It is as if teamwork is encouraged in the workforce, while “keeping score” is reserved for interacting with your family members every Thanksgiving. Subsequently many families tend to forget to create a cohesive strategic financial plan for unexpected, yet inevitable, life insurance benefit payout.
Hopefully the aforementioned statements do not pertain to you, and you have your Will and Trust in place. However it they do, it’s not a big deal and you can get started on getting your affairs in order today. (Regardless of your age, if you have children, I strongly suggest that you get your affairs in order.) I hope by now, I’ve opened your mind to the importance of family planning and more importantly, multigenerational thinking.
If you’re contemplating creating a will, financial game plan for your family in the event of a loss, or just googling ways to intelligently use a life insurance benefit; I’d like to offer some ideas to consider:
If your family home currently has a mortgage, I would strongly advise paying it off completely. If the death benefit isn’t enough to cover the balance, then at a minimum make a very large payment towards the balance. It would be quite a shame to lose a loved one, mismanage the funds, and going into foreclosure or being forced to sell your home in a short sale.
Secondly if you’re currently renting, I would be wise to purchase a home outright. Starter home, condo, tiny house; regardless of what it is make sure that you own it clear and free. The importance of having somewhere to live without a mortgage or a high monthly payment, cannot be stressed enough. It is a catapult for progress, and unfortunately most of us took it for granted when we were living with our parents.
Once you’ve secured a place to live, I would then advise paying off debt. Debt is slavery. American culture normalizes being debt as if it is equivalent to breathing. Unfortunately, due to the economic inequalities that are a byproduct of capitalism, most American families (including mine) carry some form of debt. Just because something is normal, doesn’t mean it’s the way things are supposed to be. If you have the opportunity to free your family from the bondages of debt, seize the day.
After you’ve accomplished the aforementioned suggestions, I believe your next step should be to seek professional financial advice. (Disclaimer: everything I mention in this post is my opinion and should not be misconstrued as financial advice.) I am purposely listing this as the fourth suggestion. In my experience, most financial advisors will advise you to maintain six months worth of cash and find a product to sell you. I am not discrediting this approach. If you’re dealing with an excess of a million dollars or more, their suggestion may be the optimal solution. There are products out there that will pay you a consistent fixed monthly payment which would allow you to complete the above mentioned steps over time.
Lastly, the final do is actually a don’t. Do not waste money on an elaborate funeral. Coming into an unexpected lump sum of money is a black swan event, and the opportunity shouldn’t be squandered.
Life isn’t a one size fits all experience, and there isn’t any one right answer. However, some decisions are better than others. Hopefully I’ve given you something to consider when estate planning or in the even you became the benefactor of a loved one’s life insurance policy.
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