What is the best way for a widow to use the proceeds of life insurance?

The loss of a spouse is one of the most stressful things a person can go through. With that comes a whole host of emotions that can be overwhelming for those who are bereaved. Hopefully, life insurance is something that has been put in place to allow those left behind to deal with their loss without worrying about their finances.

Lump-sum life insurance offers can cover significant up-front expenses as well as long-term costs that might be difficult to pay due to lost income. Life insurance is also usually one of the first assets transferred to the beneficiary after death.

According to Robert Steele, Partner and Head of Trusts & Estates at Schwartz Sladkus Reich Greenberg Atlas LLP: “Life insurance death benefits can be paid within 30 days of submitting a claim. In order to submit a claim, you will need a certified death certificate, which is usually issued within a week by the funeral home. Steele advises widows to order lots of copies – although this varies, consider 15 as an approximate value – as ordering extras later can take significantly longer.

On occasion, Mr. Steele has seen death benefit claims paid in as little as two to three weeks. Steele advises, “The secret is to file the claim with the insurance company in a timely manner. It is also essential to submit a certified death certificate and verify that the claim form is both complete and error-free. “

Once the life insurance proceeds are received, a new question may arise. How to use the funds? There are many options, but the best use of money is different for each widow and her particular situation.

Funeral expenses

In 2021, the average cost of a funeral ranges from $ 9,500 to $ 12,500, according to the National Funeral Directors Association. However, standard funeral prices are increasing and many can reach prices of $ 30,000 or more. Using life insurance money to cover these costs can dramatically reduce the financial strain on you.

Current expenses

When your spouse dies, your living expenses do not stop and often your income is reduced. According to the Women’s Institute for a Secure Retirement, after the death of a spouse, household income typically declines by about 40% due to changes in Social Security benefits, retirement income, and spouse’s income.

Your mortgage, car payment, utilities, food, clothing, and health care premiums are all part of your monthly budget which must be paid out of this reduced income. A death benefit from a life insurance policy can help provide the funds you need to cover these expenses.

Debt refund

You are generally not personally responsible for paying your husband’s debts, as long as they are in his name alone. This includes credit card debt, student loans, auto loans, and business loans. Instead, the debts will be paid by his estate. When an estate does not have enough funds to pay off all the debts, all the gifts that were supposed to go to the beneficiaries will most likely be reduced.

However, you may be responsible for certain types of debt, such as jointly held debts or a loan that you co-signed.

Understanding the laws of your state is essential so that you know where you stand regarding all debt. Some states that are community property states hold you liable for debt even if it is not in your name. Talking to an estate planning lawyer can help you understand what your obligations are so that you can plan appropriately.

Build an emergency fund

Life insurance proceeds can help build a liquid emergency fund, which should cover three to six months of expenses. Avani Ramnani, Certified Bereavement Coach and Certified Financial Planner®, suggests, “You will want to err on the side of having more in your emergency fund than less because you no longer have a partner whose income can provide an extra cushion.” to shock finance.

“Suppose you are both retired and living on Social Security, with additional withdrawals from your wallet. In this case, it makes sense to have at least six months of living expenses in your emergency fund, ”Ramnani shares. “This extra money will protect you against liquidation of stocks at a loss due to a temporary decline in the stock market.”

Complete your retirement

When a woman loses her partner, she becomes much more vulnerable to poverty. According to the Women’s Institute for a Secure Retirement, the poverty rate for all women (married or single) aged 65 and over is around 12%, which means that just over one in ten live in the country. poverty. But for widowed women aged 65 and over, the poverty rate is much higher, with around 51% living on less than $ 22,000 a year.

So how much will you need for your retirement? It depends. Typically, you will need 80% of your pre-retirement income to live comfortably. For others, you will need more than that, that is, if you plan to increase your spending on vacation. Many women also find that they spend more in retirement due to higher medical costs.

If you’re still working, be sure to maximize your employer’s pension plan, IRA, or taxable brokerage account. However, it is almost impossible to save and earn all the money you need for retirement on your own. You can close the gap by investing your money in the stock and bond markets so that your portfolio grows for you over time. Investing in the market will help you reach your long term financial goals.


If you are a young widow, life insurance proceeds can be wisely invested in paying back to school expenses to increase your earning capacity. Another option would be to use these funds to cover your children’s school fees. Even if you started a 529 Education Savings Plan with your husband, you probably don’t have enough money to cover tuition costs. The death benefit from your husband’s life insurance policy can provide additional funds to increase your 529 plan balances.

However, Ramnani cautions widows: “Here’s a message all young widows should take to heart: Having parents who can’t afford their retirement expenses will likely be more of a burden on your children than the college loans they could. need to repay. “

President and CEO, Francis Financial Inc.

Stacy is a nationally recognized financial expert and the President and CEO of Francis Financial Inc., which she founded 15 years ago. She is a Certified Financial Planner® (CFP®) and Certified Divorce Financial Analyst® (CDFA®) who provides advice to women going through transitions such as divorce, widowhood and sudden enrichment. She is also the founder of Savvy Ladies ™, a nonprofit organization that has provided free personal finance training and resources to over 15,000 women.

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