It's important to know what to do with life insurance claim money should you be forced to make a claim.
Insurance policies may exist for long periods of time before a claim is made. The original reason and the original amount of cover may no longer stand relevant to the situation of the claimant and their dependents, even if it does what is the money meant for.
Of the four risk insurance policy categories, the life insurance policy payout would normally represent the largest single payment of money. On receiving such a large sum of money there may be a temptation to use and allocate portions of this payment, to areas not considered at the time of implementing the sum insured. This action may leave gaps in the deceased planned dyeing wishes.
As a starting point for a sound approach to the use of this payout, it is logical to read the original documentation that was the basis for taking the insurance policy out. This documentation should outline the need for the insurance and how the money of this insurance policy was to be used. This original document is called the Statement of Advice.
Should any of these needs outlined in the original documentation still exist there is some comfort knowing these issues are able to be dealt with. Should there still be funds available from the payout what should be considered? While there is a temptation to spend any unallocated funds on immediate gratification like holidays, gifts and having a good time, the realities of life and the financial burden of living will soon catch up.
Term life insurance is called "life insurance" for the purposes of assisting in the dependents of the deceased to continue with a life, any allocated funds can then be planned to assist in achieving this continuation of life goals. Quite commonly our lifestyles are based around our income availability. Using any remaining claim funds to generate an ongoing income may therefore form a logical purpose.
The more likely situation on receiving a life insurance claim payment is that the sum of money does not meet the requirements of the current dependents lifestyle. While many Australians may hold a life insurance policy, it has been recognized by the Australian government that we have a national under insurance issue. Many people quite rightly believe they have life insurance inside their superannuation (this has been an ongoing growth area in recent years). The unfortunate reality is that these policies do not generally meet the needs of those insured. These automatic Superannuation life policies have not been implemented taking the individual's circumstances into consideration. Additionally policies that were implemented on a logical and thorough investigation of needs may have to cope with owners with changed circumstances since original inception or its most recent update.
In summary we are faced with a situation that leaves a sum of money and no clear plan how to make it effectively work for the recipient(s).
The solution to these problems is seeking good advice. Good advice may involve several people and undoubtedly one of these is a Financial Planner. It may also be prudent to seek out the original advisor who assisted with implementing the life insurance as this person may have knowledge not clear at the present time.
Some life insurance policies have a built in Financial Advice Benefit saying "if we pay the amount insured for death or terminal illness, we will reimburse up to $2,000 for the preparation of a financial plan by a financial adviser." This benefit is additional to the payout and not normally available from life companies if Life Cover has been taken out under a superannuation structure.
Life insurance claim money is not the solution it's what you do with it.