You and your spouse both knew that life insurance made perfect sense. Now as a widow or widower, why do you feel so guilty?
I don’t think there’s a person reading this who doesn’t understand that life insurance is one of the most practical purchases anyone could make. It’s our nature to ensure our families are well taken care of, even once we’re gone. Maybe especially after we’re gone.
But what if we’re not the one to go? Most of us don’t even think about the emotional impact that can come with a receiving life insurance payout – especially if one spouse should predecease the other far too early.
What follows is based on my experiences – both professionally as a financial advisor, and personally as someone who lost his spouse of 30 years when we had so much future ahead of us.
Let’s start with my professional perspective. I see life insurance as a must-have. Many of my clients are couples who’ve incurred some level of debt as they’ve built their lives. Often, they have children or are planning to. That’s why I make life insurance square one in the financial planning process.
How much insurance is the right amount of insurance?
When calculating life insurance needs, I start by removing all emotion. That might sound cold and clinical, but it’s basic math.
I use an insurance calculator to determine how much life insurance coverage Spouse A will need if Spouse B dies – then I reverse the calculations to decide the needs of Spouse B if Spouse A dies first.
My objective is simple and rational: to ensure that either spouse has enough money to maintain their lifestyle should the unthinkable occur.
That’s my professional position as a financial advisor. But as a recent widower, it never occurred to me until my wife Mary’s death to think of how it actually feels to receive a life insurance death benefit.
That taught me a lot about the human hurt of being paid when somebody you love dies.
A phrase that was new to me: “Life insurance guilt”
You won’t find the term “life insurance guilt” in a medical journal. But I find it’s a very common issue. And here’s how I came to know it, personally.
My wife of 33 years died of cancer. Not long after that, I receive a life insurance benefit. How big or how small that benefit was, that doesn’t matter. I was wracked with guilt.
Why?
I know it’s irrational, but it felt like (and this is a horrible phrase) “blood money”. Mary had to die for me to be given that cash. I stared at the cheque for months, unable to find the strength to cash it.
I’m a financial advisor. I’ve gone through the clinical steps of discussing life insurance countless times. But still, I was paralyzed by my emotions. I couldn’t think objectively. All I could think of was that the life insurance policy was supposed to help Mary when I died – not the other way around.
I actually thought about returning the cheque to the insurance company or donating the money to Princess Margaret Hospital, where they took such good care of Mary throughout her illness. I talked to my grief counsellor, who wisely advised me to deposit the cheque into my bank account. But I couldn’t bring myself to spend the money.
It was a full year after depositing the money that I spent a dime of it, using that cash in the way Mary and I had both originally envisioned it.
What should you do with a life insurance payout?
First of all, any widow or widower receiving a death benefit should deal with the psychological effects before making plans for the money. I can’t stress that enough.
When you’re ready, this is what I’d recommend – this is advice I use across the board, fulfilling the purpose of getting life insurance in the first place. I’ve divided the next steps into four buckets:
- Replace lost incomeThe loss of a spouse often means a loss of incoming salary – potentially half or more of your household income. Yet monthly expenses don’t drop all that much. That results in negative monthly cash flow (clinical financial advisor talk) into your home.
Because of this, I suggest investing the proceeds into a conservative investment strategy where, each month, the necessary amount of money is automatically redeemed from the investment pool and deposited into a chequing account. This amount can represent the cash flow deficiency caused by the loss of one salary.
- Get out of debtAs a conservative financial planner, I hate (yes, hate) non-deductible debt such as lines of credit, credit card balances and outstanding mortgages. So, get rid of those best you can.
Start with the debt with the highest interest rate. Then work yourself down the list until the life insurance proceeds are depleted or the debt has disappeared.
- Save and invest
Once you’ve eliminated non-deductible debts, and still have life insurance funds left over, consider topping up your unused Registered Retirement Savings Plan (RRSP) and Tax-Free Savings Account (TFSA) contribution room. RRSP contributions can also help reduce your taxable income, which may bring you a tax refund for the year of the contributions.If you have school-aged kids, consider saving up for their education by investing in a Registered Education Savings Plan (RESP). - Give good gifts
So, you’ve completed 1, 2 and 3 of the above. And you still have some payout left. What now? Why not consider sharing some of the money with your kids (maybe planning a big family adventure with them and their families), or donating to a favourite charity. Ask yourself, “What would my spouse do with the money if the situation was reversed?” They’d probably do something thoughtful that would honour you and your life. Do what they’d do.
A payout is not a cheque. It’s a testament to a life lived.
Mary’s passing fundamentally changed how I view life insurance. Yes, I still see it as a practical financial necessity – I always have and always will. But having experienced the emotional gut punch that can come with that cheque, I can see far more clearly that any conversation with my clients requires empathy and guidance well beyond logic and numbers.
If you’ve received a life insurance payout and find yourself paralyzed with guilt, I get it. I’ve been there. And I’m here if you want to talk about it. I’ll work with you personally to help you overcome your guilt and to guide you in seeing that it is spent in all the good ways you and your spouse had originally intended.
Believe me, that money exists because your spouse wanted you protected and secure – just as you would’ve for them if you were gone.
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source https://richarddri.ca/when-the-reality-of-life-insurance-sinks-in/
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