What Will Your Family Do? Understanding The Implications Of A Large Life Insurance Death Benefit

Don't be ashamed to admit that you worry sometimes about what is going to happen

with all that money from life insurance that's going to come to your significant other and/or children in the off-chance that you die. Many people wonder about large life insurance death benefits from policies in their name. It's natural to worry and make presumptions. A sudden windfall of money your family is going to have access to brings its own share of concerns. What if your spouse doesn't know how to manage the money well? What if the children put unfair demands for their share of the money and end up wasting it all? Will someone be able to advise them on how to invest their money wisely and not throw it away on lucrative fly-by-night schemes? And the worst doubt of them all? What if your spouse gets married to someone else and ends up moving into another home and starting over again, not really needing the money anymore to survive?

It's not about whether you need the large policy or not. For primary breadwinners in families across America, whether husbands or wives, having a large life insurance policy is a no-brainer. Stay-at-home spouses and children come to rely entirely on primary breadwinner for financial security, which in turn is linked to their emotional well being and peace of mind. Without a large life insurance payout, especially when the family is still young and growing with a stay-at-home spouse, the surviving spouse can be left grabbing at every last straw to save themselves and the family from financial and emotional disaster. So if the payout must be large, how can you keep checks and balances in place to make sure everyone is happy and safe at the end of the day?

Honesty

When it's time to buy a life insurance policy, it pays to put out all your cards on the table. Being honest about your apprehensions and speaking about them will help you both see each other's sides to the story. If you're worried your wife cannot handle that much money on her own, you could get her in touch with a recommended fee-only adviser that will stick by her side and help her make tough financial decisions. If you're worried your husband won't know how to take care of the children without you around, you could help create a contingency plan like how to find a good baby sitter, how to plan meals around budgets and where to get supplies for playing dress-up from. An open dialogue can help ease concerns that can build up over time unnecessarily.

Allocation

When deciding whether children should get money and when, there are some arrangements we've found that people use that make for very wise planning. A mother of two, when she knew her older son would choose to go to college but the younger son was prone to making unwise choices, decided to allocate them payouts at the age of 25, unless they decided to go to college, in which case, the benefit would completely cover tuition and living expenses. When choosing a trusted family member to receive benefits in case the second spouse dies, it's important to note clearly and fully in your will how you wish for this to take place.

Re-marriage

We understand how the sting of re-marriage can hurt. But many spouses understand that the only right thing to do is to allow their surviving spouses free will at least when it comes to choosing a partner to live their lives with when you're gone. As people, we constantly seek support and comfort from relationships, so it's silly to assume that they will remain unmarried as an act of faithfulness to a deceased spouse for the rest of their lives. You can choose to put the money in a trust that will allocate payouts over time as situations change.

Pay Over Time

Many life insurance policies have an option to pay benefits over time, like an annuity, to the surviving family. For a family looking for a simple, hassle-free option, this could work. However, many people don't use this option because it's limiting in its terms, rates and fees. Also, the interest accumulating over time is taxed, which many will try to avoid. You could compare life insurance policies online to see how this works and decide if it is the right choice for you.

Establishing a Trust

Many high-income families choose to create a trust to ensure that the family uses the payout responsibly, especially since the death benefit amounts can be upwards of a million dollars. A trust can also mean lots of tax-savings, which is why many people elect to have a trust administer their finances after death instead. However, make sure to leave some flexibility in the trust for your family. Allow them to use some of the money any way they want to. You can't possibly predict all of their needs from before they've taken place. For a cash-strapped family, the legal fees involved in establishing a trust may be cost prohibitive. Choose term life insurance with a wise allocation plan and secondary beneficiaries that in-laws or grandparents who will know how to handle the money well.

At the end of the day, you should also understand that putting too many restrictions on payout money can leave your family short-changed. Sometimes, people go to the extent of telling their spouses where to invest their money and how, while they're in the grave. Understand that times change, and people change, and that life insurance is at the end of the day, a selfless act of still giving to the people you love the most even when you're not around.

by: Pat Cassidy

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