How To Invest Life Insurance Proceeds (In 2022)

Written By Licensed Agent Sa ElDecember 13, 2021

Most of us have never had hundreds of thousands, or millions of dollars at once.

However, if your spouse has been responsible enough of to figure out how much life insurance they needed and they get covered.

life insurance proceeds

So... What do you do with all of that money, how do you make sure you don’t squander it or put it in the wrong places?

For me, helping my customers with life insurance usually ended when they passed away.

I could easily answer their questions about how does term life insurance work, or how much does life insurance cost, or even how much life insurance do I need, but I had no answers for their loved ones about what to do with the payout.

While family will be here to comfort us emotionally, there are some experts that can guide us through this process to make the most sound decisions at a time of sadness and confusion.

I asked over 30 of them a crucial question:

How should a surviving spouse invest their life insurance proceeds?

This guide will be a starting point for a much better understanding of how to invest a life insurance payout.

And let me tell you, the insights I received from these 30+ finance experts is some of the best advice you can get at such an emotional time in your life.

I’ve listed all of them below and guess what... your getting this all without me having to collect your personal information


IN THIS ARTICLE

Our Finance Experts

11 CFP®
7 Licensed Experts
3 CPA®
14 Finance Bloggers
Marguerita-Chang-Finance-Expert

Marguerita Cheng

CFP® & CEO

philip-taylor-finance-expert

Philip Taylor "PT"

CPA® & Finance Nerd

barbara-friedberg-finance-expert

Barbara Friedberg

MBA & Finance Blogger

debtfreeguys-finance-experts

David and John

Finance Bloggers

carl richards finance expert

Carl Richards

CFP® & Keynote Speaker

tyler huck finance expert

Tyler Huck

CFO & Series 6 Holder

andrew schrage finance expert

Andrew Schrage

Finance Blogger

david ning - finance expert

David Ning

Finance Blogger

binjamin bingham finance expert

Benjamin Bingham

CFP® & Author

john madison finance expert

John Madison

CPA® & Financial Coach

eric roberge finance expert

Eric Roberge

CFP® & Advisor

robert berger finance expert

Robert Berger

J.D. & Finance Blogger

eric rosenberg finance expert

Eric Rosenberg

MBA & Finance Blogger

james dahle finance expert

James Dahle

MD & Finance Blogger

sophia bera finance expert

Sophia Bera

CFP® & Finance Blogger

paul rubin finance expert

Paul Rubin

CFP®

roger wohlner finance expert

Roger Wohlner

MBA & Financial Advisor

neal frankle finance expert

Neal Frankle

CFP® & Finance Blogger 

todd tresidder finance expert

Todd Tresidder

Wealth Coach

gina young

Gina Young

MBA & Finance Writer

frugal trader finance expert

Frugal Trader

Finance Blogger 

brent sutherland finance expert

Brent Sutherland

CFP® & AIF®

ross riskin finance expert

Ross Riskin

CPA® & PFS

john schmoll finance expert

John Schmoll

MBA & Finance Blogger 

gary foreman finance expert

Gary Foreman

Finance Blogger

tony steuer finance expert

Tony Steuer

CLU® & LA & CPFFE

shannah game finance expert

Shannah Game

CFP® & Finance Blogger 

cameron evans finance expert

Cameron Evans

CFEI & Consultant

tim naughton finance expert

Tim Naughton

Finance Software Expert

sanchit taksali finance expert

Sanchit Taksali

MBA & CFP®

peter anderson finance expert

Peter Anderson

Finance Blogger

brian brandow finance expert

Brian Brandow

Finance Blogger

evan taver finance expert

Evan Tarver

CFA & Finance Blogger

jason preti finance expert

Jason Preti

CFP® & NAPFA

steven fox finance expert

Steven Fox

EA & NAPFA

riley adams image

Riley Adams

CPA & Finance Blogger



The Experts On Investing Life Insurance Proceeds

Read each finance expert's advice on how to invest your life insurance proceeds:


#1: Marguerita Cheng (Blue Ocean Global Wealth

"Where and how you decide to invest should take into consideration your age, your time horizon, income & expenses"

Answer:

At first glance, the question "How should a surviving spouse invest their life insurance proceeds?" sounds simple, but as with many things in life, the best response is "it depends".

There is no perfect investment recommendation because every family situation is unique.

Your investment allocation or where and how you decide to invest should take into consideration your age, your time horizon, income & expenses, assets & liabilities tax bracket, goals, etc.

For example, when my Dad passed away in February 2015 after his 9 year struggle with Parkinson's disease, I helped my Mom complete the paperwork for his whole life insurance policies.

I gave my Mom the same advice that I give all of our clients.

Allow yourself the time and space to grieve.

Do not rush into an any investment decisions.

In fact, the best thing you can do at this time is refrain from making any investment decisions.

It is important to allow yourself to adjust to the uncertainty.

If appropriate, enlist the help and support of friends and family and work with a Certified Financial Planner who can help you develop a financial plan so that you understand your present situation.

If you understand your present situation, you can feel more comfortable and confident planning or the future.

Here are some strategies to help you chose the right wealth manager for you and your family.

Top

#2: Philip Taylor "PT" (PTMoney.com

"If you have the income to support it, start placing the stock fund and cash fund portfolio into tax-advantaged accounts"

Answer:

First, take a year to think about it without doing anything.

You don't need to rush it.

Keep the proceeds in a savings account with interest.

Then, after major obligations like the mortgage have been paid off, take the remaining proceeds and split it into thirds: one in a low-cost stock index fund, one in a bond fund, and the other in cash in a savings account.

Moving forward, if you have the income to support it, start placing the stock fund and cash fund portfolio into tax-advantaged accounts using annual maximum limitations.

Top

Related Content: The Ultimate Guide To Term Life Insurance

#3: Barbara Friedberg (Robo Advisor Pros

"Put the proceeds into a bank savings account, make sure not to exceed the FDIC insurance limits of $250,000 per depositor, per bank, per ownership category."

Answer:

After losing a loved one, the first step is to wait.

Put the proceeds into a bank savings account, make sure not to exceed the FDIC insurance limits of $250,000 per depositor, per bank, per ownership category.

Pay off your debt.

Hold out a percent of the proceeds for emergencies (6-9 months living expenses).

Invest the rest in accord with your risk level and time horizon. If you lack investing expertise, you might want to hire a financial planner to help invest.

You might consider using a robo-advisor to help invest the proceeds.

You can find reviews of Personal Capital, Betterrment, Schwab and others here.

Top

#4: David Auten & John Schneider (Debt Free Guys

"Don't think there's a one size fits all."

Answer:

Don't think there's a one size fits all.

Depends on Social Security benefits & other money.

Suggest working with an advisor @massmutual or @Prudential

Top

#5: Carl Richards (Behavior Gap

"They should invest the only way one can invest: based on their values and goals."

Answer:

No need to make this complicated, they should invest the only way one can invest: based on their values and goals.

Top


89 %

Percent of People (in a recent survey by The Simple Dollar) that would spend a financial lump-sum paying off debt.


#6: Tyler Huck (Oxygen Financial

"Putting aside money for your children in a 529 or UTMA account to draw from in the future for college expenses can be a great idea."

Answer:

Wipe out debt that may be dragging down your family income.

If there is any outstanding mortgage, auto loans, consumer debt, student loans, etc. that are on the family balance sheet, go ahead and wipe those out.

Putting aside money for your children in a 529 or UTMA account to draw from in the future for college expenses can be a great idea.

If the surviving spouse needs to supplement the deceased spouse's income, invest the remaining funds into a non-qualified brokerage account with interest bearing positions that are more conservative in nature.

While life insurance proceeds that are paid to a beneficiary are tax free, any interest received off investments of those proceeds are taxable.

Looking at state specific municipal bonds can be a great way to remain conservative with your investments and generate income for yourself that is exempt from those taxes.

For example, if you live in Georgia and buy municipal bonds that are Georgia-specific, all interest generated from those bonds are tax free at both the federal and state level.

Top

#7: Andrew Schrage (Money Crashers

"You'll probably need a portion of life insurance proceeds for near term expenses"

Answer:

You'll probably need a portion of life insurance proceeds for near term expenses, but you should try to make sure that you have at least 50% left for investing purposes.

After that, maximize your 401k plan contributions if your employer offers such a program.

If more is left, open either a Roth or traditional IRA.

Another option is to invest in real estate, but you should really only undertake that strategy if you're well-versed in that area.

You could also beef up your own retirement portfolio, making sure to maintain a healthy mix of stocks and bonds, with the mix dependent upon your age.

A final option is to purchase either an annuity or life insurance policy with a cash-value aspect to it.

Top

#8: David Ning (Money Ning

"The surviving spouse should seriously consider increasing the safe asset portion of the household’s investment portfolio."

Answer:

It’s important, first of all, to assess whether this large insurance proceed along with a lost of one source of income changes the financial situation of the household, as it often does.

The surviving spouse should seriously consider increasing the safe asset portion of the household’s investment portfolio.

Once that decision is made and the new asset allocation mix is set, then just invest according to the plan.

We at MoneyNIng.com advocate low cost diversified index investing, so the mechanics of it all should be straight forward.

Top

#9: Benjamin Bingham (3 Sisters Sustainable Management

"In choosing investments they should consider the environment and society as well as their financial needs."

Answer:

First, this depends on the survivor's age and circumstance.

If there is another generation to consider, after securing enough investments to match the survivor's risk/return profile, income and liquidity needs, they might consider paying off all debts so that is no longer a worry or burden in the future.

They should set aside travel or other wellness related money to help them heal from their loss and if they aspire to greater knowledge or education, they should invest in themselves by enrolling in courses that give them a sense of meaning and purpose.

Lastly, in choosing investments they should consider the environment and society as well as their financial needs.

This is the legacy they leave as an inspiration to others.

For further thoughts on money they could check out my book here.

Top

#10: John Madison (60 Minute Finance

"In determining how a surviving spouse should invest life insurance proceeds, I think it's important to first evaluate their specific situation."

Answer:

In determining how a surviving spouse should invest life insurance proceeds, I think it's important to first evaluate their specific situation.

There really isn't a universal rule, in my opinion.

For example, if the surviving spouse is employed outside the home and has earned income sufficient to meet their current spending needs, the insurance proceeds could be invested with retirement in mind.

Conversely, a stay-at-home surviving spouse (for example, a parent at home with their children) would need the proceeds to provide replacement income.

In cases like this, the proceeds would need to be more conservatively invested.

For example, the beneficiary may benefit from one to two years of expenses left in cash, then laddering CD's for years three through six, then perhaps the balance of the proceeds could be invested in equities via a low-cost index fund.

As the years pass and the CD's mature, a portion of the equity position would move to new CD's to protect against a significant equity market correction at the wrong time.

Obviously, it's important to make sure enough life insurance is purchased in order to fund the investment pools if the surviving spouse would need to use the proceeds to cover their living expenses for an extended period of time.

Top



#11: Eric Roberge (Beyond Your Hammock

"The short answer is that it depends on many factors, including the age and work status (employed, retired, etc) of the surviving spouse"

Answer:

The short answer is that it depends on many factors, including the age and work status (employed, retired, etc) of the surviving spouse, and the amount of existing asset outside the life insurance proceeds.

For example, if the surviving spouse is 50 years old and makes enough money to afford his or her lifestyle, then the proceeds should probably be invested for growth to ensure that the balance is adequate for the 20-30 years of retirement down the road.

This type of portfolio might consist of a 60/40 split between stocks and bonds, split between various asset classes including US stocks, international developed countries, emerging markets, corporate bonds, and treasuries.

You can find exchange traded funds and mutual funds that will provide you access to these asset classes.

If however, the spouse is 80 years old and needs the life insurance proceeds to generate income now to pay for current expenses, he or she might consider investing in dividend paying stocks and also set up a bond ladder strategy.

The purpose of this type of portfolio would be to generate income and maintain principle.

A client's risk capacity is greatly reduced when assets are needed today.

Therefore, the portfolio should be much more conservative than that of the previously mentioned 50 year old spouse.

Top

#12: Robert Berger (Dough Roller

"It depends on his or her investing goals, time horizon, and risk tolerance"

Answer:

There's no one answer to this question.

It depends on his or her investing goals, time horizon, and risk tolerance, to name a few.

As a general rule, you want to stick with low-cost, index funds with a tilt toward stocks over bonds.

Beyond that, it would depend on specific circumstances.

Top

#13: Eric Rosenberg (Personal Profitability

"Life insurance is designed to help you cover living expenses, so a surviving spouse shouldn't just blow the money on fun purchases and trips."

Answer:

Life insurance is designed to help you cover living expenses, so a surviving spouse shouldn't just blow the money on fun purchases and trips.

After paying for funeral costs, the best option is to invest the funds conservatively to last as long as possible.

Following the Warren Buffett plan he suggested for his wife when he passes away, you should invest 90% in a low-fee S&P 500 index fund and 10% in a short-term bond fund.

If you need cash from the investments immediately and over time, a low-cost dividend fund might make more sense.

Whatever you do, don't spend too much too quickly.

Do not rush and make dramatic, lavish lifestyle changes.

The life insurance proceeds you received might have to last a long time, so be thoughtful about every dollar you spend to ensure it lasts a very long time.

Top

#14: James Dahle (The White Coat Investor

"With regards to investing, many times the death of the insured has changed the survivor's need and ability to take risk"

Answer:

A life insurance payout, like any other windfall, should be sat on for a few months while a new financial plan is drawn up by the investor, with or without an advisor.

There are times it should be used to pay off debt, times when it should beef up an emergency fund, times when it should be invested for the future, and times it should be spent.

With regards to investing, many times the death of the insured has changed the survivor's need and ability to take risk, so it is likely that a change in asset allocation is warranted.

Top

#15: Sophia Bera (Gen Y Planning

"Interview fee-only CFPs and hire the one who you connect with the most"

Answer:

The first thing I recommend is to pay off any high interest rate debt, max out your retirement accounts for the year, and then don't make any other big decisions for at least 6 months.

There's a great book called "Sudden Money" by, Susan Bradley that I highly recommend for anyone who receives an insurance settlement, lottery winnings, or a large inheritance.

During those 6 months, interview fee-only CFPs and hire the one who you connect with the most to help you navigate through your money more effectively.

Top


21 %

Percent of people according to a recent investopedia article, that still have mortgage debt by the age of 75. 


#16: Paul Rubin (Prime Wealth Management) 

paul rubin finance expert

Paul Rubin

"One of the biggest factors will be the surviving spouse's age to see how long to plan for"

Answer:

As it is commonly said in the industry, the answer is it depends.

One of the biggest factors will be the surviving spouse's age to see how long to plan for, but then the annual income need (i.e. gap to fulfill annual living expenses) from the life insurance proceeds will need to be determined as well.

On a high level, once the withdrawal rate is calculated in conjunction with other assets and financial goals, the investment strategy can be recommended in order to keep up with inflation and to support the surviving spouse's financial needs over the duration of the rest of his/her life.

The proposed investment strategy should align with the surviving spouse's risk tolerance, to ensure consistency of the strategy long-term.

Top

#17: Roger Wohlner (The Chicago Financial Planner

"He/she should take their time to cope with their loss and then sit down and look at their overall financial situation"

Answer:

Each surviving spouse's situation is different so there is no "one size fits all" answer.

He/she should take their time to cope with their loss and then sit down and look at their overall financial situation and invest the proceeds accordingly.

A young widow/widower with minor children will have different financial needs than an older surviving spouse in or near retirement.

Top

#18: Neal Frankle (Wealth Pilgrim & MCMHA

"The survivor might have enough income and therefore may want to tuck it away for retirement or education"

Answer:

A surviving spouse should invest the money as most appropriate to their particular situation.

The survivor might have enough income and therefore may want to tuck it away for retirement or education.

On the other hand, the survivor may not have enough income once their spouse dies.

What is critical is that the survivor revisit their financial plan and understand what they need and how much income those proceeds can really provide.

For example, $500,000 may seem like a lot of money - and it is.

But if you receive that as a death benefit and withdraw $75,000 a year to make up for your deceased spouse's lost income, that $500k will be gone in less than 10 years.

So you have to figure what you need the money to do for the survivor and over what period of time.

If you need the money to provide more benefits than it can reasonably expect to deliver, please revisit your financial plan.

All that said, for most people, if you want this pot of money to provide long-term benefits, it should be invested in long-term investments.

That means, for most people, at least some portion should be invested for growth. Here's a post that goes into retirement income in greater detail.   

So the most important take-away is - there is NO ONE RIGHT ANSWER.

It depends on each situation and understanding that situation is far more important.

You can't find the right investment unless you understand what neighborhood to look in.

Top

#19: Todd Tresidder (Financial Mentor

"The first thing you want to do when you receive a life insurance payout is part it in a safe, secure place"

Answer:

The first thing you want to do when you receive a life insurance payout is park it in a safe, secure place like Treasury Bills or a Money Market Fund where there's little risk of loss (or gain).

Then do absolutely nothing with it.

Just sit on it.

The reason this is a critically important first action is because you must emotionally take possession of the money before you invest it, and that takes time.

It must become "your money" so that if it's lost you feel a sense of loss.

You don't want to invest life insurance proceeds right after receiving the check because you'll be prone to "easy come, easy go" investment mistakes.

This will be difficult to do because the investment industry has been remarkably effective at making you believe you must be invested at all times.

However, that's biased advice resulting from the fact that they only make their fees when your invested but make nothing off you sitting in cash equivalents.

The reality is inflation won't destroy your nest egg in a year or two of sitting, and in the meantime you can develop your investment knowledge and do some research so that you're emotionally ready to invest the money when the right opportunity presents itself.

Top


#20: Gina Young (Money Savvy Living

"The insurance proceeds need to be invested into safe investment vehicles"

Answer:

When a surviving spouse receives a life insurance benefit, it should be invested into very low risk mutual funds, CDs, or money market accounts.

This money is presumably to be used to pay for items such as the home the surviving family lives in, college tuition for children, or other more immediate expenses.

With that in mind, the insurance proceeds need to be invested into safe investment vehicles, which will preserve the principle and earn interest

Top




#21: Frugal Trader (Million Dollar Journey

"Personally, I would simply index the portfolio with globally diversified ETFs for the long term"

Answer: