While getting a large life insurance payout to help financially after the death of a loved one is a huge blessing, it's hard to know what to do with so much money when you've just lost someone so important to you. All you want is for them to come back to you. It's okay to take time and mourn and not do anything with the money right away. When you're able, work with a professional to help you invest it.
One of the best things you can do is to put that money into a savings account. Let's say that your spouse died, and you received $600,000 in a life insurance payout. You're going to need time to grieve and adjust to your new life. You can't be expected to make huge financial decisions right away. Put the money in a savings account for safe keeping once you pay for the final expenses. You will want to divide it up between banks since the FDIC insurance won't cover an amount that large.
If you've not been earning an income outside the home, draw out a modest amount each month. This should be what you usually budget, and it should be enough to pay your bills and expenses. But, if you are working, try living on your income and supplementing with the life insurance proceeds.
After six to twelve months, you will probably be settled into your new normal. Now's the time to find an investment professional to work with. Interview several because you're going to be trusting a professional to teach and guide you in financial decisions. You want them to have the heart of a teacher — listening to your questions and concerns and helping you understand the answers. If your sixth sense tells you there's something fishy about a person, trust your intuition and move on.
A common scenario is to invest the bulk of the life insurance money into good mutual or index funds which have long track records. Still, understand that the market goes up and down. You will see this happen, so don't put in money you need to use within the next five years. For example, let’s say you want to pay off your mortgage. Do that now before you invest the money.
Once invested, you can draw from it as necessary. When possible, try to use your earnings and only supplement with this money. Remember that if you don't pay attention to what you're doing with the money, you're bound to use it up.
In the unfortunate event that you receive a life insurance check, remember not to make quick decisions about it. Find a trusted professional to help you invest it for the long haul, so you can use it to help your kids through college and support you in retirement.
Also Read: How to Buy Life Insurance to Cover End-Of-Life Needs