If you have filed an insurance claim and have received a payout or the first payment, what should you do with it? It can burn a hole in your pocket if you’re not careful. Don’t think of this as “free money.” Consider these more responsible thoughts.
Insurance Payouts are a Financial Tool
Spend the money in the way it was intended – to fix your car or your home, pay for a funeral, pay claim-related expenses first. If you have debt associated with the claim, then pay it off with the benefit proceeds to avoid high interest and fees.
Generally insurance payouts are not taxed. But read the fine print on both your insurance policy and the check that you receive. Call the company if you aren’t sure.
If you don’t spend the entire amount at once, there are short-term options for what to do with it in the meantime. Avoid co-mingling the money with your regular checking account. You might consider investment vehicles that pay interest while you think through longer term options.
Investment options for your funds might include a money market fund or deposit account, higher-yield bank or credit union account, or a short-term certificate of deposit (CD). You could also consider Treasury bonds or short term bond funds.
What is your time horizon? Will your money be safe through Federal Deposit Insurance Corporation (FDIC) assurances? What are the interest rate and fees? What about ability to withdraw the money and any penalties for doing so?
Unsworth LaPlante, PLLC in Vermont can help you think through how to manage these decisions in consideration with other Estate Planning needs.