Five ways life insurance can protect your family’s future
When a loved one passes away, the last thing on your mind is money. But a life insurance policy can help families protect their futures and ease financial burdens.
If you are the beneficiary of a life insurance policy, you must file a claim in order to receive any money. You can choose to receive the benefit as a lump-sum payment or spread it out over a number of years as an annuity.
A life insurance payout could work toward your family’s financial security in several ways.
Save for retirement
If you’re married, your retirement plan is probably built around the financial contributions of you and your spouse. A life insurance benefit can be used to help replace their future contributions. Excess cash can be used to ensure maximum annual contributions to workplace plans as well as contributions to an IRA.
Along with final expenses for the deceased, you may encounter some unexpected costs. For example, the death of a stay-at-home parent may mean additional child care, meals and other household costs. The sum from a life insurance policy can be used to cover or defray these costs to maintain your family’s quality of life.
Fund a college savings account
To keep children’s dreams of higher education on track, consider using part of the life insurance benefit to fund a college savings plan. There are different options available, including some that allow for tax advantages and have no income limitations.
Pay off debts
Eliminating debts can be a huge stress reliever, especially when you’re grieving. In addition to your own debts, you may have a legal obligation to pay off debts of the deceased, too. If you served as a co-signer on a loan or jointly held debts, then you will become responsible for those debts. But in non-community property states, debts incurred by one spouse are not always the responsibility of the other spouse following a death. Check the laws of your state to see what the obligations might be.
Create a lifetime income stream
Instead of taking a life insurance benefit all at once, consider spreading it out over a number of years with an annuity. This lessens the burden of having to manage a lump sum and makes your yearly income predictable. Annuities even allow you to spread out annuity payments for the rest of your life.
Although nothing can replace the loss of a loved one, having access to life insurance benefits can lessen financial worries during an already difficult time. Explore your options to make sure you’re making the right financial moves to meet your goals.
Talk with your financial advisor about how life insurance can fit into your financial plan.
The information above is provided as a courtesy. Lincoln Financial Group does not offer legal or tax advice. We encourage you to seek the advice of an attorney or accountant with any tax or legal issues.