What to do if You Receive a Life Insurance Benefit

“If ever there is a tomorrow when we’re not together, there is something you must always remember. You are braver than you believe, stronger than you seem, and smarter than you think. But the most important thing is, even if we’re apart, I’ll always be with you.”
– Christopher Robin to Winnie the Pooh (hat tip)

If you’re in this situation, I am terribly sorry for your loss. You’re dealing with the emotions of losing someone who cared about you.

First, take the time to grieve.

You either have had to or will have to put on a brave face for the world who wants to sympathize and empathize with you, and that takes an enormous amount of energy. Don’t be afraid to take the time to grieve and mourn and cry. It’s OK to do that. The world will still be there when you’re ready to enter it again, so don’t feel like you have to rush.

If you are looking for information on what to expect in the grieving process, this article is an excellent resource for further guidance on what will happen and how to help cope with your grief. In short, there are no “right answers,” and while grief generally follows a series of steps, it’s different for everyone.

If you haven’t done so, file a claim with the insurer.

How each insurance company handles the filing of the claims is different, but all of them are going to want to receive a certified copy of the death certificate. Make sure that you have several copies, as you may also need them to claim Social Security benefits, pensions, or annuities if your spouse had those and you’re an eligible beneficiary.

Contact your agent or your insurance company and notify them of the death and that you are a beneficiary of the insurance policy. They will usually send you a packet that you’ll need to fill out and return to them along with the certified copy of the death certificate. At this point, if your policy allows for it, you’ll decide whether or not to receive an annuity or a lump sum. Once you’ve filed your claim, you should receive your payment within two to three weeks; there will be laws in your state which provide guidance for how quickly the payout should arrive.

Lump sum or annuity?

I recommend taking a lump sum for a fairly simple reason. If you choose an annuity, you’re locked into that option, and changing your mind will be costly. If you choose a lump sum, you can always decide to purchase an annuity later if you decide that is the best option to take. You don’t need, within a short period of time after an enormous emotional loss, to be making such a permanent decision.

What to do with the lump sum once you’ve received it?

If you have a large sum of money and you’ve never dealt with such a large sum, you’ll experience the temptation to do something with it. You may be approached by sales representatives, brokers, and “investment representatives” who tell you that they can help you, that they know what to do, and that they can take care of your money for you.

They can’t. They’re looking for a quick sale and to take advantage of your grief.

Instead, put the money into a money market account. Your bills and day-to-day expenses haven’t gone away, and while you’ll get back to work eventually, you do need some time to recover and you need access to money in the meantime. If you received a benefit of more than $250,000, then split up the money across multiple banks so that no one bank has more than $250,000 of your accounts in it. $250,000 is the Federal Deposit Insurance Corporation’s (FDIC) limit for the amount of money that it will protect in the event of a bank insolvency, so you do not want your money in any given bank to exceed that amount.

As you need to pay your regular expenses, then use this money to cover the bills until you’ve gone back to work.

You’re eventually going to wonder what to do with this money that is sitting in money market accounts.

For at least six months, do nothing. That advice may last up to 2 years.

According to the grief resource guide I cited earlier, it takes between 6 months and 2 years to go through the stages of grieving. While you’re in the middle of the grieving process, you’ll have a different mindset than you normally would. You don’t want to make critical, long-term, life-affecting decisions during this time if you can help it.

Once you’re through the grieving process, you can move on to planning what to do with the rest of your life and how you want that money to play a role in helping you reach your goals. You may want someone to help you with thinking through some questions, and you may want to do it yourself.

Whatever you decide, that is for another day. Take the time to grieve and adjust. Don’t make decisions now which will affect the rest of your life. You’ll know when you’re ready to take on that work. You’re not going to miss out on anything by choosing to do nothing until you’re really prepared and you’ve grieved. It’s OK to take a step back, let the money sit there, and do something with it sometime in the future.

Until then, may you find peace and comfort.