What to do with insurance, ESTATE OR lawsuit settlement proceeds resulting from death

You lost a loved one. The impact can initially be devastating from an emotional, psychological, and physical standpoint.

Death can also have real (and imagined) financial repercussions. When a wage earner dies, survivors may also lose a source of income they depend upon. They are forced to simultaneously struggle with grief and figure out how to deal with drastically changed economic circumstances.

In other cases, death can result in a windfall from an insurance or lawsuit settlement. insurance_proceeds - blood moneyThis situation presents a special dilemma. Coming into money this way is not fun and exciting like winning the lottery (which can actually be challenging to deal with too.) You lost someone you loved, and the only reason you are getting this money is because they are dead.

If you do end up with a significant sum of money, here are some considerations on how to handle the situation. (Most of these recommendations also apply to beneficiaries of an estate.)

  • Let go of guilt. It is impossible to put a price on someone's suffering and life, but in our society, we attempt to do just that. The primary purpose of an insurance or wrongful death lawsuit is to help compensate for loss of income, and in some cases, to provide a form of compensation for pain. Still, a settlement can feel like "blood money," since it was obtained at the cost of someone's life. Think about how you would want your lost loved one to feel if your situations were reversed. Most likely, you would not want them to be wracked with guilt. You would want them to be taken care of, and to have one less thing to worry about. So try to accept the settlement. Let gratitude replace guilt.
  • Keep it private. Unfortunately, money can do really strange things to people and relationships. Don't let it get in the way. Also, if the money was from a legal settlement, you may have to sign a nondisclosure agreement prior to receiving funds. If you violate that agreement, you could potentially forfeit the settlement.
    • I would suggest only sharing information about a wrongful death lawsuit or insurance settlement with your partner (or perhaps a parent if you do not have a partner) and a trusted financial advisor. If people ask, you might respond with "I'm sure you will understand that I'm not comfortable discussing that [with anyone but ___ fill in the blank - my partner, my financial advisor, etc.] Thank you for respecting my privacy." If they persist, do the broken record thing - just repeat the phrase until they grow weary or embarrassed.
  • Get sound financial advice. This is especially important if you have not had to deal with much money in the past. Depending on what you need it for, or want to do with it, you should get professional advice from a certified financial planner. Some groups like Fidelity offer this service free of charge when you open an account.
  • Establish a separate account. Keep the money separate from your other accounts, so you can direct it purposefully, and keep track of it. Even if it seems like a lot of money, trust me, it probably won't last forever.
  • Consider setting up a trust for minor beneficiaries. When it comes to money, young and reckless often go together.
  • Think carefully before spending the money. They say you shouldn't make major decisions for a year after a significant loss. Your judgement may be impaired, and you may not yet have a good handle on how your life may have changed or the direction it will go in. I thought I knew for sure what loss would mean for my life, but as it turned out, I was wrong in countless ways.
    • Don't rush. I know some people who blew a lot of money after a loss, in an attempt to make themselves feel better. It doesn't work, and you could end up in serious financial trouble. A family member who was widowed in her 50's thought she was set for life. She gave money away to friends, bought an expensive car, etc., and then at age 65 had to go back to work for minimum wage.
    • Choose wisely. You may only have one shot at deciding where to spend the money, since it is not unlimited, so make your choices wisely. Pay off debts first. Also consider doing something with the money that will bring you joy. Their life is over - yours is not. Live it.
  • Do good with at least some of the money, if possible. Doing good feels good. It can bring you a measure of peace and healing. You can also make a tremendous difference with well directed donations. You can give money to an organization your loved one believed in, an organization that helped them, or to a project as a tribute in their honor. (See examples of things done in my late husband Doug's memory.)

    Your generosity could make a real difference to an individual or the world. It leaves a legacy that memorializes the love you lost. Consider this an opportunity to make something good come from something terrible.





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