We buy life insurance policies to protect our loved ones and their financial future in case of our untimely demise. While reeling with the loss of a loved one can be incredibly difficult, it is important to be very prudent and practical when you are deciding how to spend the amount you have received as life insurance claim settlement. While the immediate spending will vary upon personal priorities and needs, the major goal of the settlement is to allow you to be financially stable in the long term.
Here are some ways you can use money received as life insurance claim settlement:
Clear off any debt you may have
One of the first things you should do when you receive a life insurance claim settlement is clear off any debt you may have accumulated. This includes any mortgages, credit card debt, student loans, and house loans, amongst others. Interest and EMI payments are a significant monthly fixed expense, and if you can even pay back a part of your loan or mortgage, you will no longer have to pay additional interest on the same.
Sound financial planning
It is important to remember that the key point of an insurance settlement is to help you achieve long term financial stability. As a nominee, you have to be very careful about how you will be spending your payout, and it is advisable to come up with a financial game plan for the same. List out any big-ticket expenses you will have to pay for in the future such as your children’s higher education, your retirement, etc.
Invest in stable market instruments
In order to ensure maximum utilization of your payout, you will have to consider various investment options at your disposal which will help you maximize returns. While your choice of market instruments will depend on a range of factors including your financial goals and risk appetite, it is important to remember that the goal of your investment is to ensure financial stability for you and your family in the long run. Hence, it is advisable not to undertake any risky investments and instead have a diversified investment portfolio that gives you returns without being too risky. You can also consult investment portfolio managers and agents to get a professional viewpoint on your investment decisions.
Set up an emergency fund
Life is unpredictable and you should section off at least a part of the life insurance claim settlement to add to an already existing emergency or rainy day fund. As a thumb rule, your emergency fund should cover 6-8 months of all your day to day expenses and is critical to avoid a financial crisis in case anything happens. Putting aside some of your payouts into this emergency fund in an accessible and relatively liquid format should be a priority for everyone.
Opt for a monthly payout instead of a lump sum
Several insurers allow you to receive monthly payouts for your claim settlement instead of a lump sum amount to help beneficiaries maintain their financial health. Alternatively, if your insurer does not offer this facility, you can also invest your settlement payout in a manner that allows you to receive monthly payments. This makes your claim settlement much more manageable.
Invest in a new life insurance policy
Insurance policies are designed to help protect you and your family’s financial future in case something bad happens and taking out a new insurance policy will further secure your goals. Nominees should ensure they get a new insurance policy after the passing of the main breadwinner to ensure they secure the future of any dependents they still have.
Spend your insurance claim amount judiciously to ensure that your family’s financial future remains secure in the long run.
The aforesaid article presents the view of an independent writer who is an expert on financial and insurance matters. PNB MetLife India Insurance Co. Ltd. doesn’t influence or support views of the writer of the article in any way. The article is informative in nature and PNB MetLife and/ or the writer of the article shall not be responsible for any direct/ indirect loss or liability or medical complications incurred by the reader for taking any decisions based on the contents and information given in article. Please consult your financial advisor/ insurance advisor/ health advisor before making any decision.
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