My mom expects to receive a big life insurance check soon. She’s overwhelmed and doesn’t know what to do with that payout. Should she invest it? If so, in what?”
That heartfelt question was asked at the close of a recent Galentine’s Day event hosted by the Florida Wildlife Corridor Foundation, where I spoke on “Moving Forward on Your Own: A Workshop for Widows, Wives, and Friends.”
As a financial professional, you may have received similar questions — often asked with urgency and emotion — from clients or their loved ones. While the circumstances may differ, the core concern is consistent: What’s the smartest and safest way for a newly widowed person to handle life insurance proceeds?
This remains a relevant issue today, just as it was when I first explored this topic more than a dozen years ago. Despite the passing of time, I continue to hear from advisors who assist widowed clients as they navigate this emotionally charged financial crossroads. The decisions involved carry lasting implications, and thoughtful guidance from a trusted advisor can make all the difference.
Here are five important steps to assist widows in making thoughtful, informed decisions about their life insurance proceeds.
Right after a spouse’s death isn’t the time to make big financial decisions. Grief clouds judgment, and what seems logical may not be the best long-term choice.
Instead of rushing into investments or making big financial changes, widows can place life insurance proceeds in a secure, easily accessible location — such as an FDIC-insured savings or money market account or a similar temporary option. This gives a necessary buffer, allowing time to grieve and adjust to the new financial reality without excessive pressure. It’s best to focus on her health and well-being during this time. Grief requires time to process, and a new widow will be better equipped to make sound financial decisions once she has navigated her initial intense grief.
Step Two: Assess Immediate Needs and Goals
Before deciding how to use life insurance proceeds, ask essential questions such as:
Will part of this money be needed for short-term expenses, such as medical bills, funeral costs, or home maintenance?
Is financial security the primary goal, or does she have other aspirations, such as supporting her family, donating to charity, or purchasing a new home? One of my former clients established a scholarship fund to honor her late husband, bringing her great joy. Every year afterward, she received a note of gratitude from scholarship recipients, which she cherished.
What’s her comfort level with investing, and does she have prior experience managing assets?
Many widows worry about making financial mistakes, and rightly so. Some rush into investments they don’t understand, while others give away large sums without considering their long-term financial needs. A candid conversation can prevent costly missteps.
Step Three: Understand Cash Flow and Future Income
A widow’s income and tax situation may change dramatically after her spouse’s passing. Advisors can help clients:
Verify Social Security benefits. Some widows mistakenly assume they will continue receiving both their own and their spouse’s benefits, but in most cases, they only get the higher of the two amounts.
Assess pension changes, if applicable. Depending on the pension plan’s structure, a surviving spouse’s pension benefits often decrease significantly.
Review other income sources, such as dividends, rentals or annuities.
Understand the “widow’s penalty tax” and how to potentially mitigate it. When one spouse dies, the other’s tax filing status changes from “married filing jointly” to “single,” which usually leads to a higher tax bill. Additionally, Medicare premiums and other expenses may also increase for some widows.
Once the full picture is clear, advisors can help determine whether the insurance proceeds should supplement income, cover future healthcare expenses, remain a financial safety net, or be used for other purposes.
Step Four: Avoid Emotional Spending and Predatory Advice
New widows often feel pressure — sometimes from well-meaning family members — to make quick financial decisions. Some may be urged to invest aggressively, while others may feel emotionally inclined to distribute money to their children or grandchildren. Advisors can serve as a buffer, helping clients make rational decisions rather than being ruled by emotions.
Additionally, widows are often targeted by financial predators. From high-fee investment schemes to fraudulent new friends asking for a handout, advisors can educate clients about common scams and the importance of verifying any financial advice they receive. One of my widowed clients in her early 90s gave other widowed friends good advice when she told them, “Watch out for those fellows who want to sweet talk you out of your money or expect you to be their nurse!”
Step Five: Build a Sustainable Plan
Once a widow has processed her new financial reality, it’s time to craft a longer-term strategy. Considerations include:
Emergency Fund: A portion of the proceeds should be kept in an easily accessible account to cover unexpected expenses.
Housing Decisions: If she plans to downsize, funds may be needed for moving expenses, home updates, or bridging costs.
Conservative Investments: A mix of conservative and balanced investments may provide stability and growth depending on her risk tolerance and income needs.
Legacy Planning: Some widows may wish to create a legacy through charitable contributions, gifts to family, or estate planning adjustments.
“Just for Fun” Fund. If possible, save some money for enjoyment, including travel or special expenses that bring happiness. One of my clients used this fund to facilitate a family reunion. She covered the costs of getting her adult children and grandchildren together for a memorable cruise trip to the Caribbean Islands.
The Role of a Trusted Advisor
Financial professionals are not just number crunchers but guides and advocates during one of life’s most challenging transitions. By asking thoughtful questions, encouraging patience, and providing objective advice, advisors can help widowed clients confidently move forward.
Widows who feel supported and informed are more likely to trust their advisors, seek additional guidance, and refer others in similar situations. Financial professionals build lasting relationships based on trust and care by focusing on education and long-term well-being rather than quick fixes.
Final Thoughts
The question of what to do with life insurance money will continue to rise, as it has for years. The good news is that with thoughtful planning, a measured approach, and professional guidance, widows can navigate this decision with clarity and confidence.
As advisors, our role isn’t just about managing money; it’s about empowering widows to make financial decisions that align with their needs, values and long-term security. You might also find this recent article published by Rethinking65 helpful as you guide widowed clients.
Kathleen M. Rehl, PhD, CFP®, CeFT® emeritus, wrote the award-winning book “Moving Forward on Your Own: A Financial Guidebook for Widows.” She owned Rehl Financial Advisors for 18 years before launching an encore career empowering widows through her writing, speaking, research and mentoring. Now “reFired,” Rehl writes legacy stories and assists nonprofits. Her work has appeared in The New York Times, The Wall Street Journal, Kiplinger’s, CNBC and more. She’s an adjunct at The American College of Financial Services. Several free tools for advisors can be found on her website at www.kathleenrehl.com.
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My mom expects to receive a big life insurance check soon. She’s overwhelmed and doesn’t know what to do with that payout. Should she invest it? If so, in what?”
