Business News Desk, When a large payment from insurance is received after the death of a family member, it is a moment of mixed emotions. Of course this money can provide financial security during that challenging period, but it also comes with some responsibilities, which is very important to understand. Managing a large term insurance payment wisely is important to ensure long-term financial well-being. Let us discuss here how to manage a significant insurance payment after the death of a family member and what to do and what not to do.
Prioritize immediate needs
Immediately after a major loss such as the loss of a family member, make sure you allocate funds for essential expenses. This includes covering the funeral and related costs, settling outstanding debts, and ensuring that your family’s day-to-day needs are met.
Create an emergency fund
Immediately set aside a portion of the money you receive from term insurance as an emergency fund. This fund acts as a financial cushion against unexpected expenses and emergencies, providing peace of mind during challenging times.
If there is any loan due, repay it immediately
If there are any loans or debts outstanding, give priority to repaying these debts. This not only provides financial relief but also prevents interest from accumulating.
Consult a financial advisor
In case of a large sum received against term insurance, it is advisable to consult a financial advisor. According to ICICI Direct, this can help you create a comprehensive financial plan, taking into account your family’s specific needs, objectives and the tax implications of your actions.
Diversify your investments
Instead of keeping a large sum of money idle, consider investing it for the long term. Diversify your investments across different asset classes such as fixed deposits, mutual funds, stocks and real estate to minimise risk and achieve financial growth.
Review and update your will
Take this opportunity to review and update your will and estate planning, ensuring that your assets and insurance policies are structured to benefit your chosen beneficiaries.
Consider tax planning
While proceeds from term insurance are generally tax-free under Section 10(10D) of the Income Tax Act, other financial decisions may have tax implications. Consult a tax professional to understand the tax consequences of your financial actions and optimize your tax position.
Do not rush into financial decisions
Avoid making any impulsive financial decisions without long-term planning. Take the time to plan carefully and weigh your options.
Don’t neglect tax planning
Of course, term insurance proceeds are generally tax-free, but other financial actions may have tax implications. Ignoring these aspects could result in unnecessary tax burden.
Don’t spend too much
According to ICICI Direct, it is wise not to waste your term insurance money. Spending too much money can lead to financial instability in the long run.
Don’t neglect your ongoing life insurance needs
If the deceased family member was the primary breadwinner, do not overlook the need to purchase new term life insurance to ensure financial security for your family in the future.
Do not keep financial matters private
Avoid hiding details of insurance policies and financial matters from family members. Open communication is essential to ensure that everyone understands the financial situation and can take appropriate action.
