The loss of a spouse is an extremely stressful event. It comes with many emotions that can be overwhelming for the bereaved. It often comes with major financial concerns. Hopefully, life insurance is one thing that was put in place to allow those remaining to process their loss without fretting over their finances. How to use your deceased spouse’s life insurance sounds like it can be simple to do, but Beck & Lenox Estate Planning & Elder Law, LLC, warns you to be very thoughtful about it.
We wanted to share this recent article from Kiplinger’s with you entitled “What Is the Best Way for a Widow to Use Life Insurance Proceeds?”
Life insurance death benefits can be paid within 30 days after you submit a claim. To do this, you need a certified death certificate, which is generally issued in less than a week by the funeral home. You should also order plenty of copies (about 15) for closing accounts.
The best use of the money is different for each widow and her unique situation.
Funeral Costs. Use life insurance money to cover these costs to decrease your financial strain.
Ongoing Expenses. When your spouse dies, living expenses do not stop. Your income is frequently reduced. In fact, after the death of a spouse, household income generally declines by about 40% due to changes in Social Security benefits, spouse’s retirement income and earnings. The death benefit from a life insurance policy can help provide the funds you need to help cover your mortgage, car payment, utilities, food, clothing and health care premiums.
Debts. You are generally not personally responsible for paying off the debts of your husband, provided they are in his name alone. When an estate does not have enough funds to pay all the debts, any gifts that were supposed to be paid out to beneficiaries will most likely be reduced. Note that you may be responsible for certain types of debt, such as debt that is jointly owned or a loan that you have co-signed. Talk to an experienced elder law attorney to understand the laws of your state, so that you know where you stand concerning all debts.
Create an Emergency Fund. Life insurance can help build a liquid emergency fund, which should cover three to six months of expenses.
Supplement Your Retirement. When a woman loses her spouse, she becomes much more vulnerable to poverty. To retire, a person typically needs 80% of their preretirement income to live comfortably.
Education. If you are a young widow, the life insurance proceeds can be used to pay for going back to school to augment your earning abilities. These funds could also cover the cost of college for your children. However, you should only save for college educational costs after your retirement savings is secure.
Your attorney, like the ones at Beck & Lenox should offer you a complimentary consultation in the event your spouse has died to review “what next”. As part of that review, seek advice on how to use your deceased spouse’s life insurance. Be thoughtful and focus on the priorities for you and any minor children you may have.
Reference: Kiplinger (Dec. 17, 2021) “What Is the Best Way for a Widow to Use Life Insurance Proceeds?”