People purchase life insurance policies hoping they’ll never need to use them. But when the unthinkable happens, their beneficiaries receive a large sum of money that they may not know how to use. Shawn Meaike asks — should they invest it?

If the policyholder took out more than enough to cover the mortgage, those left behind often save the rest, allowing the leftovers to earn interest. However, experts suggest that investing a life insurance payout makes more sense. 

By Investing Life Insurance Payouts, Beneficiaries Make More Money

Generally speaking, financial planners advise clients to take out life insurance that covers their salary at least ten times over. So, if a spouse making $100,000 per year passes away, their partner would receive a $1 million payout from their loved one’s policy. 

However, it’s unlikely that any heirs will need the entire $1 million immediately, even if they have medical bills, funeral costs, and a mortgage to pay for. 

Investing a portion of the sum they don’t need for at least five years would make sense in this situation. That way, the payout makes more money over time, giving beneficiaries more expense-covering options later on. 

However, it’s worth noting the risks that come with investing — there’s always a chance that heirs actually lose money if the markets don’t go the way they hoped for.

Getting Help to Invest a Life Insurance Payout

People without a background in or intimate knowledge of investment portfolios and brokerage accounts tend to seek expert advice to minimize the associated risks.

Financial advisors formulate customized investment strategies for their clients according to their goals, ensuring they understand the pros and cons of all methods. 

Typically, advisors suggest diverse investment portfolios, spreading risks across various markets. Therefore, the rest of their money is safe if one market doesn’t go in their client’s favor. 

Some commonly suggested investment vehicles for life insurance death benefits include:

• Bonds — Investors make money from bonds by holding them until maturity and earning interest payments or selling them for more than they paid. Interest payments are sent at regular, predictable intervals and amounts, provided they’re fixed-rate bonds. 
• Dividend stocks — Dividends are regular cash payments given to company shareholders. They’re perhaps the most direct way for investors to get returns, although there are some significant risks that financial advisors plan for when crafting investment strategies for death benefits. 
• Alternative investments — Many advisors ensure part of a person’s portfolio is alternative investments, like cryptocurrency, blue-chip, and mineral rights. 
• Growth stocks — These only give investors money once they sell their stocks. Their value increases due to capital appreciation. They tend to work wonders for those looking for long-term earnings.

Of course, plenty of other investment vehicles exist, but those above serve as a guide of what heirs can do with their life insurance payout. 

To Invest Is the Answer

Once debts are paid, investing the remaining funds allows heirs to receive more money in the future, stabilizing their finances for years to come.