What Should You Do With a Life Insurance Benefit?

By Melanie Lockert  The Fabric Blog

We’ve all dreamed of coming into a large sum of money. You imagine all the ways you’d spend a million dollars and think how much better your life would be. But what if you did get a large sum of money but it came at a great cost? This is what life insurance is all about.

But what is it like getting a life insurance death benefit and how does it actually work? What should you actually do with a life insurance benefit? We chatted with personal finance experts to find some answers.

Receiving a Life Insurance Benefit

Life insurance death benefit amounts can vary depending on the policy. Generally, life insurance payouts aren’t taxable unless you earn interest.

Emily Guy Birken, author of End Financial Stress Now received a life insurance death benefit in 2013 after her dad passed. During a time of grief, it can be difficult to do almost anything—but luckily the process of claiming her death benefit wasn’t too difficult.

“I was pleasantly surprised at how easy it was to get the life insurance payout. Based on life insurance in pop culture, I thought it would be a more drawn-out or emotionally draining process,” she says.

In order to receive the life insurance payout, Birken says she had to fill out paperwork, sign documents and send in the death certificate. It took her about two to three weeks to receive the payout. In general, this process can often take between 30 to 60 days.

Choosing Between Payment Options

When it came to actually getting the life insurance payout, Birken was offered a couple of options. “The insurer offered us the option of receiving the full amount in either a check or direct deposit, or keeping it in their interest-bearing account, which is what my sister and I both opted to do,” explains Birken.

Choosing to keep it in the interest-bearing account was a strategic move and one that helped her manage her spending.

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