There are many options available, but each widow’s unique situation will dictate which one is best.
Losing a spouse can be one of the most difficult events that a person could experience. It can bring a host of emotions that can overwhelm the bereaved. Life insurance was created to help those who are left to grieve without worrying about their finances.
Do I have to pay off my husband’s debts?
Life insurance policies that are lump-sum can be used to cover significant immediate expenses and long-term costs that may not be possible due to lost income. The beneficiary’s first asset after a death is often life insurance.
Robert Steele, partner at Schwartz Sladkus Reich Greenberg Atlas LLP, is head of the Trusts & Estates Department. He says that “life insurance death benefits can usually be paid within 30 day after you submit a claims.” You will need a certified funeral certificate to file a claim. This is usually issued within a week.
According to the National Funeral Directors Association, the average funeral costs will range from $9,500 up to $12,500 in 2021. Standard funeral costs are rising and some can cost as much as $30,000, according to the National Funeral Directors Association. You can reduce the financial burden by using life insurance money to pay these expenses.
Your living expenses and income do not cease after the death of your spouse. According to the Women’s Institute for a Secure Retirement (WISR), household income decreases by around 40% after the death or disability of a spouse. This is due to changes in Social Security benefits and spouse’s retirement income.
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You will need to pay your mortgage, car payment and utilities as well as food, clothing, and health care premiums on this lower income. These expenses can be covered by the death benefit of a life insurance policy.
Repay your debts
As long as the debts are not in your name, you are generally not responsible for them. This includes student loans, credit cards, and business loans. Instead, the estate will pay all debts. If an estate doesn’t have sufficient funds to pay all of its debts, gifts that are supposed to be distributed to beneficiaries will be cut. You may still be responsible for certain types debts, such as joint debt or loans that you co-signed.
Create an Emergency Fund
A liquid emergency fund should be built using proceeds from life insurance. It should cover three to six month’s expenses. Avani Ramnani is a Certified Grief Coach (r) and Certified Financial Planner(r). She suggests that you should have more money in your emergency fund than less. You don’t have any partner who can give financial protection against financial shocks.
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“Imagine that you both were retired and lived off Social Security. You could also take supplemental withdrawals from the portfolio. Ramnani shares: “In that scenario, it would make sense to have at most six months of living expenses in your emergency fund.” This extra cash will help you avoid losing any stocks in the event of a temporary stock market crash.
Supplement your Retirement
A woman who loses her husband is more likely to be in poverty. The Women’s Institute for a Secure Retirement estimates that the poverty rate for all women 65 years and older is approximately 12%. This means that nearly 1 in 10 people live in poverty. For widowed women aged 65 and over, the poverty rate for them is higher at 51%, living on less than $22,000 per year.
How much money will you need for retirement? It depends. To live comfortably, you’ll need to have 80% of your preretirement earnings. Others will need more if they plan to increase their vacation spending. Many women find that their retirement income is higher due to rising medical costs.
You can use the proceeds of your life insurance to help you pay for school, if you’re a widow or young widow. You could also use the funds to pay for college tuition for your children. Even if your husband has a 529 college savings account, it is unlikely that you have enough money to pay for college. Your husband’s death benefit can help you increase your 529 plan balance.
Ramnani warns widows that they should not save for college until their retirement savings are secure. It is okay to prioritize your children when it comes to saving. Parents who are unable to meet their retirement expenses will most likely place more stress on your kids than any college loans.
From one widow to another: Words of wisdom for hope and happiness
- About the Author
- Stacy Francis, CFP(r), CDFA(r), CES(tm)
- President & CEO, Francis Financial Inc.
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Stacy is a nationally-recognized financial expert. She is also the President and CEO at Francis Financial Inc. which she founded 15 year ago. Stacy is a Certified Financial Planner (CFP(r), and Certified Divorce Analyst (CDFA(r),) providing advice for women who are going through life transitions such as divorce, widowhood, and sudden wealth. Savvy Ladies(tm) is her non-profit that provides free financial education and resources for over 15,000 women.