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How you can use a lump-sum life insurance payout

As the primary beneficiary, receiving such a substantial amount of money all at once can feel overwhelming. You may often wonder what to do with a lump sum life insurance payout. Use these tips to manage a life insurance policy payout.

A life insurance payout can be a real lifeline for any surviving partner or family that is trying to cope financially after the loss of a loved one.

Life insurance companies typically offer a variety of payout options for life insurance death benefit proceeds : a lump sum, an annuity, installment agreements and other similar structured payout plans, although this can vary by company and insurance policy. The default payout option of most policies is a lump sum of the death benefit.

Receiving such a substantial amount of money all at once can feel overwhelming. That’s why it’s so important to take time to understand the best ways to manage a lump-sum life insurance payout. These tips from financial professionals can help.

In this article:

Don’t rush to make big financial decisions

The best thing to do when you receive a lump-sum life insurance payout is to hold onto that money for several months before making any significant financial decisions.

“If you have received a life insurance payout, this is one time where it may make sense to let the cash just sit in your account,” says R.J. Weiss, a CFP® professional and founder of the personal finance education website The Ways to Wealth. “Your goal is to make a rational, educated decision, not an emotional one.”

Keeping a lump-sum payout in cash will allow you to cover bills and other pressing financial needs in the months after losing a loved one. Just don’t leave the money in a checking account, says Daniel Kopp, a fee-only, fiduciary financial planner and founder of Wise Stewardship Financial Planning, which specializes in serving widows, widowers and service members.

Consider a high-yield savings account

Instead, you may want to consider putting the payout in a high-yield savings account to earn interest on the balance. If you received a large payout, you might have to spread the money out over several savings accounts. That’s because Federal Deposit Insurance Corporation deposit insurance covers only $250,000 per depositor, per FDIC-insured bank.

After making sure you’ve covered all of the immediate expenses, your first priority is using some of a life insurance payout to build an emergency fund, Kopp says. This will give you a cash reserve so you won’t be derailed by the unexpected, he notes.

Financial professionals typically recommend having enough in an emergency fund to cover three to six months’ worth of expenses. If the life insurance proceeds are kept in a high-yield savings account, it can earn interest and be easily accessed if and when emergencies arise.

If the loved one you lost was the breadwinner, you may want to set aside more in an emergency fund to keep you afloat financially as you search for a job. You can simulate a monthly paycheck until you’re getting an income of  your own by setting up automatic transfers from your savings account to your checking account.

Pay off high-interest debt

If you have high-interest debt such as credit card debt, you could use a lump-sum life insurance payout to eliminate that debt, Kopp says. By paying off what you owe, you’ll free up more cash in your budget each month to cover other bills and to have more of a financial cushion.

Wondering whether to pay off a mortgage with a life insurance payout? It depends on your situation, Kopp says. You might be considering using the life insurance proceeds to pay off your mortgage if the thought of that big monthly payment is keeping you up at night. You may also want to consider the trade-offs of other approaches as well, such as savings accounts or investment vehicles. Working with a financial professional can help.

Find a trusted financial advisor

Figuring out how to invest a lump-sum life insurance payout can be difficult on your own. That’s why it can be smart to hire a financial planner. “Having that third party to walk through options will help,” Kopp says. When he lost his wife in 2017, Kopp says he hired a financial planner “to be that rational third party to help me see the errors in my thinking.” It can also equip you with the information and perspective needed to make sound financial decisions.

You may want to work with a financial planner who is a fiduciary — a professional who is legally and ethically bound to act in the best interests of a client. You can find a fiduciary financial advisor through organizations such as NAPFA, the XY Planning Network and Fee-Only Network.

Kopp suggests working with a planner that specializes in helping widows or widowers. “This needs to be somebody who can relate emotionally,” he says. Take the time to interview several advisors to find the best fit for your circumstances.

It’s not just easier life insurance, it’s an easier life.

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About Cameron Huddleston

Cameron Huddleston is the author of Mom and Dad, We Need to Talk: How to Have Essential Conversations With Your Parents About Their Finances. She is an award-winning journalist with more than 18 years of experience writing about personal finance. Her work has appeared in Kiplinger’s Personal Finance, Business Insider, Chicago Tribune, Forbes, MSN, Yahoo and many more print and online publications. U.S. News & World Report named Cameron one of the top personal finance experts to follow on Twitter, and AOL Daily Finance named me one of the top 20 personal finance influencers to follow on Twitter. She has appeared on CNBC, MSNBC, CNN and “Fox & Friends” and has been a guest on ABC News Radio, Wall Street Journal Radio, NPR and more than 30 podcasts. Cameron has also been interviewed and quoted as an expert in The New York Times, Chicago Tribune,, MarketWatch and more.

Read more by Cameron Huddleston

Our editorial policy

Haven Life is a customer-centric life insurance agency that’s backed and wholly owned by Massachusetts Mutual Life Insurance Company (MassMutual). We believe navigating decisions about life insurance, your personal finances and overall wellness can be refreshingly simple.

Our editorial policy

Haven Life is a customer centric life insurance agency that’s backed and wholly owned by Massachusetts Mutual Life Insurance Company (MassMutual). We believe navigating decisions about life insurance, your personal finances and overall wellness can be refreshingly simple.

Our content is created for educational purposes only. Haven Life does not endorse the companies, products, services or strategies discussed here, but we hope they can make your life a little less hard if they are a fit for your situation.

Haven Life is not authorized to give tax, legal or investment advice. This material is not intended to provide, and should not be relied on for tax, legal, or investment advice. Individuals are encouraged to seed advice from their own tax or legal counsel.

Our disclosures

Haven Term is a Term Life Insurance Policy (DTC and ICC17DTC in certain states, including NC) issued by Massachusetts Mutual Life Insurance Company (MassMutual), Springfield, MA 01111-0001 and offered exclusively through Haven Life Insurance Agency, LLC. In NY, Haven Term is DTC-NY 1017. In CA, Haven Term is DTC-CA 042017. Haven Term Simplified is a Simplified Issue Term Life Insurance Policy (ICC19PCM-SI 0819 in certain states, including NC) issued by the C.M. Life Insurance Company, Enfield, CT 06082. Policy and rider form numbers and features may vary by state and may not be available in all states. Our Agency license number in California is OK71922 and in Arkansas 100139527.

MassMutual is rated by A.M. Best Company as A++ (Superior; Top category of 15). The rating is as of Aril 1, 2020 and is subject to change. MassMutual has received different ratings from other rating agencies.

Haven Life Plus (Plus) is the marketing name for the Plus rider, which is included as part of the Haven Term policy and offers access to additional services and benefits at no cost or at a discount. The rider is not available in every state and is subject to change at any time. Neither Haven Life nor MassMutual are responsible for the provision of the benefits and services made accessible under the Plus Rider, which are provided by third party vendors (partners). For more information about Haven Life Plus, please visit:

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