Two Primary Methods for the Use of Funds
Many life insurance experts will tell your loved ones to pay off most or all debts with the proceeds. By doing so, they will have lower monthly expenses and can afford to live off of less money each month. Your spouse may generate enough income to live off of the reduced budget in many cases. The other option involves investing the insurance proceeds. You can reasonably expect to receive between six and eight percent on funds invested in a moderately risky investment vehicle, such as stocks. Using a modest seven percent figure on a $500,000 policy, your loved ones can generate $35,000 per year to live off of. If they do not dig into the initial starting balance, they can enjoy this income stream for the rest of their lives. Furthermore, the initial $500,000 investment can later be used in retirement years as needed.
How to Develop an Effective Plan
A cost-effective plan may include a combination of both options. For example, you may allocate a portion of the proceeds to pay off the credit cards and other unsecured debts as well as the cars. The mortgage may remain in place because there are tax deductions associated with this debt. Then, you can determine the amount of money your loved one will need to continue to live comfortably based on the revised budget. You can estimate how much money you need to provide as a lump sum to be invested to generate the necessary income.
The best idea is to explore several different scenarios to find the one that is best for you and your family. It is wise to create a written plan for your loved one onto follow, and you can place this plan on top of your insurance policy in your stored documents. This way, your loved one will know why you chose the coverage amount you did and how you planned for him or her to use it. More information can be found at Insurance Hero, which provides additional resources.