Utilising insurance money
The family members of the deceased receive insurance money from the insurance company towards the settlement of life insurance claim. If the insured was the sole bread earner for the family, the pay-out can ensure that the family members do not have to go through financial travails and uncertainties and helps them to achieve their goals in life, provided the money is utilised judiciously. For this, the family members need to sit down together and decide on the best course to adopt to ensure that the money is utilised to serve the purpose of providing financial stability to the family and helps the family members to achieve their financial goals. Let’s us look at the factors that need to be taken into considerationwhile deciding on the utilisation of the insurance amount.
After receiving the money, the first thing that the family needs to do is to pay off any outstanding debt and liabilities that may prove to be financial drag on the family’s resources. Paying off debt such as home loan, car loan or personal loan can help the family save on monthly interest outgo. However, if the repayment of debt eats into a substantial portion of the insurance amount, the family can consider repayment of only high cost loans such as personal loan and credit card loan or consider partial repayment of large loans such as home loan. But if there is any other earning member in the family whose income can take care of monthly expenses of the family, the entire insurance amount can be utilised towards extinguishing all outstanding loans.
The utilisation of the insurance amount should depend on the immediate, medium and long term needs of the family. After setting aside requisite amount for immediate needs of the family, one should continue to put in money in existing investments that are aimed at achieving long term financial goals. One needs to also plan for financial goals such as education and marriage of children and building up a retirement corpus to provide for a regular income for the family and, accordingly, the family can then think of investing some portion of the amount in various asset classes, such as equities, debt, gold and real estate. Also, some portion of the insurance amount can be set aside towards creating a contingency fund to be used during financial emergencies.