Most of us have never had hundreds of thousands, or millions of dollars at once, however; if you have recently received life insurance proceeds. You might feel stuck and unsure what to do with such a windfall. What do you do with all of that money, how do you make sure you don’t squander it or put it in the wrong places?
I asked over 30 personal finance experts a crucial question: How should a surviving spouse invest their life insurance proceeds?
This guide will be a starting point for a much better understanding of How To Invest Life Insurance Proceeds? And let me tell you, the insights I received from these 30+ finance experts is some of the best advice you can get at such an emotional time in your life.
We’ve listed all of them below!
The Experts On How To Invest Life Insurance Proceeds
Read each finance expert’s advice on how to invest your life insurance proceeds:
#1: Marguerita Cheng (Blue Ocean Global Wealth)
“ Where and how you decide to invest should take into consideration your age, your time horizon, income & expenses“
Answer:
At first glance, the question “How should a surviving spouse invest their life insurance proceeds?” sounds simple, but as with many things in life, the best response is “it depends”.
There is no perfect investment recommendation because every family situation is unique.
Your investment allocation or where and how you decide to invest should take into consideration your age, your time horizon, income & expenses, assets & liabilities tax bracket, goals, etc.
For example, when my Dad passed away in February 2015 after his 9 year struggle with Parkinson’s disease, I helped my Mom complete the paperwork for his whole life insurance policies.
I gave my Mom the same advice that I give all of our clients.
Allow yourself the time and space to grieve.
Do not rush into an any investment decisions.
In fact, the best thing you can do at this time is refrain from making any investment decisions.
It is important to allow yourself to adjust to the uncertainty.
If appropriate, enlist the help and support of friends and family and work with a Certified Financial Planner who can help you develop a financial plan so that you understand your present situation.
If you understand your present situation, you can feel more comfortable and confident planning or the future.
Here are some strategies to help you chose the right wealth manager for you and your family.
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#2: Philip Taylor “PT” (PTMoney.com)
@ptmoney
“If you have the income to support it, start placing the stock fund and cash fund portfolio into tax-advantaged accounts“
Answer:
First, take a year to think about it without doing anything.
You don’t need to rush it.
Keep the proceeds in a savings account with interest.
Then, after major obligations like the mortgage have been paid off, take the remaining proceeds and split it into thirds: one in a low-cost stock index fund, one in a bond fund, and the other in cash in a savings account.
Moving forward, if you have the income to support it, start placing the stock fund and cash fund portfolio into tax-advantaged accounts using annual maximum limitations.
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Related Content: The Ultimate Guide To Term Life Insurance
#3: Barbara Friedberg (Robo Advisor Pros)
“Put the proceeds into a bank savings account, make sure not to exceed the FDIC insurance limits of $250,000 per depositor, per bank, per ownership category.“
Answer:
After losing a loved one, the first step is to wait.
Put the proceeds into a bank savings account, make sure not to exceed the FDIC insurance limits of $250,000 per depositor, per bank, per ownership category.
Pay off your debt.
Hold out a percent of the proceeds for emergencies (6-9 months living expenses).
Invest the rest in accord with your risk level and time horizon. If you lack investing expertise, you might want to hire a financial planner to help invest.
You might consider using a robo-advisor to help invest the proceeds.
You can find reviews of Personal Capital, Betterrment, Schwab and others here.
#4: David Auten & John Schneider (Debt Free Guys)
“Don’t think there’s a one size fits all.“
Answer:
Don’t think there’s a one size fits all.
Depends on Social Security benefits & other money.
Suggest working with an advisor @massmutual or @Prudential
#5: Carl Richards (Behavior Gap)
@behaviorgap
“They should invest the only way one can invest: based on their values and goals.“
Answer:
No need to make this complicated, they should invest the only way one can invest: based on their values and goals.
89 %
Percent of People (in a recent survey by The Simple Dollar) that would spend a financial lump-sum paying off debt.
#6: Tyler Huck (Oxygen Financial)
@TylerHuck
“Putting aside money for your children in a 529 or UTMA account to draw from in the future for college expenses can be a great idea.“
Answer:
Wipe out debt that may be dragging down your family income.
If there is any outstanding mortgage, auto loans, consumer debt, student loans, etc. that are on the family balance sheet, go ahead and wipe those out.
Putting aside money for your children in a 529 or UTMA account to draw from in the future for college expenses can be a great idea.
If the surviving spouse needs to supplement the deceased spouse’s income, invest the remaining funds into a non-qualified brokerage account with interest bearing positions that are more conservative in nature.
While life insurance proceeds that are paid to a beneficiary are tax free, any interest received off investments of those proceeds are taxable.
Looking at state specific municipal bonds can be a great way to remain conservative with your investments and generate income for yourself that is exempt from those taxes.
For example, if you live in Georgia and buy municipal bonds that are Georgia-specific, all interest generated from those bonds are tax free at both the federal and state level.
#7: Andrew Schrage (Money Crashers)
“You’ll probably need a portion of life insurance proceeds for near term expenses“
Answer:
You’ll probably need a portion of life insurance proceeds for near term expenses, but you should try to make sure that you have at least 50% left for investing purposes.
After that, maximize your 401k plan contributions if your employer offers such a program.
If more is left, open either a Roth or traditional IRA.
Another option is to invest in real estate, but you should really only undertake that strategy if you’re well-versed in that area.
You could also beef up your own retirement portfolio, making sure to maintain a healthy mix of stocks and bonds, with the mix dependent upon your age, Life Insurance Rates By State In America!.
A final option is to purchase either an annuity or life insurance policy with a cash-value aspect to it.
#8: David Ning (Money Ning)
“The surviving spouse should seriously consider increasing the safe asset portion of the household’s investment portfolio.“
Answer:
It’s important, first of all, to assess whether this large insurance proceed along with a lost of one source of income changes the financial situation of the household, as it often does.
The surviving spouse should seriously consider increasing the safe asset portion of the household’s investment portfolio.
Once that decision is made and the new asset allocation mix is set, then just invest according to the plan.
We at MoneyNIng.com advocate low cost diversified index investing, so the mechanics of it all should be straight forward.
#9: Benjamin Bingham (3 Sisters Sustainable Management)
“In choosing investments they should consider the environment and society as well as their financial needs.“
Answer:
First, this depends on the survivor’s age and circumstance.
If there is another generation to consider, after securing enough investments to match the survivor’s risk/return profile, income and liquidity needs, they might consider paying off all debts so that is no longer a worry or burden in the future.
They should set aside travel or other wellness related money to help them heal from their loss and if they aspire to greater knowledge or education, they should invest in themselves by enrolling in courses that give them a sense of meaning and purpose.
Lastly, in choosing investments they should consider the environment and society as well as their financial needs.
This is the legacy they leave as an inspiration to others.
For further thoughts on money they could check out my book here.
Taking Action
WOW! HUGE thanks to everyone who contributed to this much needed post! Please share if you think this is useful! Still in need of coverage? get a quick life insurance quote. If this investing thing seems a little scary you can try your hand at some of these trading platforms. If you are currently going through this situation, please feel free to ask questions in the comment section below.