Suddenly becoming a widow is devastating enough. It takes a while, perhaps, to get over the shock and grief and to begin thinking clearly again.
However, if your husband had a life insurance policy and you are the beneficiary, no matter how large or small the amount might be, it’s crucial to your financial future that you have a clear plan on how to handle that money.
Too many financial mistakes have been made in the name of ignorance and poor planning, and too many financial windfalls have been totally lost and misappropriated simply by following bad advice, or worse, no advice.
If the insurance settlement is $600,000 or over, it will need to be probated by a local court, no matter what the will says. Once this is reported to the court, it becomes public record and all bets are off. You will have every investment salesman hounding you for your money.
Even if it’s less – perhaps $50,000 – you must still understand how to manage these funds so they will continue to work for you for years to come.
Before paying off your house, buying a new Mercedes, or taking a Mediterranean cruise with all your friends, you need to understand the ramifications of every dollar you spend from then on.
For stay at home moms who have never managed money or even worked, $50,000 can sound like a lot of money. It’s not. If you are lucky enough to receive even more – let’s say $300,000 – this is where problems start. Too many women waste the money with shopping sprees that weren’t possible before, and bad investments that will never produce returns.
Here are some simple Don’t’s to follow when you receive your check:
- Don’t tell anyone you have this money. No one. Especially someone who might want to borrow it. If anyone asks if you’ll be OK, say “Yes”. That’s all they need to know.
- Don’t go buying any big ticket items unless they are absolutely mandatory. You might be OK buying new kitchen appliances, but you don’t really need that new Rolex, right?
- Most insurance companies will automatically establish a money market checking account for you, using your insurance funding. You will get interest. Leave it there. Don’t transfer it anywhere for now.
- This may seem cruel, but don’t overspend on the funeral. Funeral directors will ask how much your insurance check will be (mainly to make sure they will be paid). If they find out it’s a considerable amount they will try to add on useless services that add no value but cost a fortune.
- Don’t schedule any appointments with anyone who wants to sell you any type of investment opportunities. These people are on commission and are only concerned with one thing: their own commission.
Leave that money alone until you feel you can start to make rational decisions. Once you’re feeling better, get in touch with a certified financial planner, a CFP. These people must be licensed by the state and their actions are regulated and monitored. They are experts in financial management.
He will go over your current financial situation in detail. He won’t try to sell you anything. He will, however, be able to give you good advice on how to manage your insurance settlement so that it will work for you going forward.
A CFP does not work on commission; he usually charges an hourly rate. He is not going to try to steer you in the direction of a particular fund or investment opportunity that he has anything to do with. Yes, he may recommend certain investments, but his recommendation should only be based on his knowledge of that investment and how it relates to your financial situation.
After meeting with him you must understand his advice and, most important, you should like him and trust him. If you have any doubts, meet with another planner. When someone is going to tell you how to spend your money, you need to be comfortable with his recommendations, and in agreement with these decisions.