How to Invest a Lump-Sum Life Insurance Payment

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Contributor, Benzinga
April 4, 2022

Spending a life insurance payout wisely is pivotal, especially if you’re planning to use your lump-sum payment to build a solid financial future for your dependents. If the payout is not invested or spent the right way, you could find yourself frivolously spending thousands of dollars. Life insurance payments are meant to help you financially after the death of a loved one, so to invest the money the right way, it’s best to do extensive research and planning beforehand.  

How to Invest a Lump-Sum Life Insurance Payment

The point of life insurance is to be able to leave your loved ones with a certain amount of money to keep them afloat after you’re gone. When you die, the life insurance benefit is paid out to the beneficiary or beneficiaries you named. The life insurance payout can be paid in a tax-free lump sum or in smaller installments, depending on the specifications of the policy. 

A lump-sum life insurance payment is the most common way for beneficiaries to receive a life insurance payout. Most policies have the lump-sum payout as the default option, which means your beneficiaries receive a single cash payment for the entirety of the death benefit they are entitled to. The payout can be spent and used whenever and however you or your beneficiaries want. If your beneficiaries choose to invest the death benefit, they can do so however they wish. The following are a few ways you can use a life insurance payout to invest for the future. 


The life insurance settlement can be used to pay for a child’s education, whether it’s private elementary, high school or college. Private education can be expensive, and if your child chooses to go to a private university, their college debt could be hefty when they graduate. Using the death benefit to pay for your children’s education could mean relieving them of future education debt. 

Using the payout to pay for education can be considered an investment because it ends up making more money for your child in the long run. It promotes generational wealth because your child is not crippled by debt when they enter the workforce. The money they start making can go to them, not to their debt. It also allows them to not have to worry about how much their education costs, which provides more opportunity because they can consider more than cost when choosing a school. 

Getting Out of Debt

There are few limitations on how you can use the death benefit you recieve from a life insurance policy. Many beneficiaries use their lump-sum benefit to get out of debt. Many types of debt might be causing you financial hardships, ranging from medical bills to student loans and a mortgage to credit card debt. You can use your life insurance benefit to get out of debt, which can save you thousands of dollars on interest. 


Investing in an annuity is similar to investing in a life insurance policy. If your beneficiaries take the lump-sum death benefit and invest it back into an annuity, that wealth will continue to be passed on and benefit future family members. Annuities can be used for income during retirement for your spouse or for general expenses for your children in the future.

However, you can also choose for the benefit to be distributed as annuities, which means the life insurance payout will be paid in a series of payments over the life of the beneficiary rather than all at once. This allows for the beneficiary to have those payments secured for the future. 


You can use your death benefit to invest in stocks and funds, seeing returns through dividends and capital gains. Some specific life insurance policies go straight into stocks and are invested that way. However, your beneficiaries can choose to invest the lump-sum payout in stocks themselves upon payout. It’s important to note that while a death benefit payout is not taxed, the gains on a stock investment may be subject to taxes depending on the type of account you use to invest. 

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Just as with stocks, a life insurance payout can be used to purchase bonds. Using the death benefit in this way allows you to then earn interest on the investment. Bonds can be an appealing investment because they accrue interest and have financial backing from a corporation or local government. This makes bonds a less risky investment than stocks. 

Cryptocurrency and NFTs

Investing in cryptocurrency and non-fungible tokens (NFTs) works the same way many other investment options do. You purchase the crypto or the NFT, and you reap the return on the investment by selling the asset at a higher price than you paid for it. Thousands cryptocurrency projects are available to invest in, and opening a cryptocurrency brokerage account is easier than ever. Though cryptocurrencies can be more volatile investments when compared to stocks and bonds, this volatility can potentially help you increase your returns. 

Real Estate

Investing in real estate can be a major long-term opportunity if done correctly, but it isn’t as cut and dried as other investment options and typically takes a lot of research and consulting to ensure the investment is beneficial. However, the lump-sum payout can be used to invest in real estate, whether it’s by purchasing an apartment building, a strip mall or buying a home and renting it out to tenants. By investing in real estate, you can earn income by charging tenants rent and by selling the real estate at a higher value in the future.  


Crowdfunding allows small businesses or entrepreneurs to raise capital through a number of investors. Crowdfunding platforms today allow anyone to raise the money needed to fund nearly any type of venture. You can use the death benefit from your life insurance policy to get involved in crowdfunding as an investor, which entitles you to a percentage of the project or business that you’re backing. If you want to become a business owner but your life insurance payout isn’t enough to cover the initial costs of your startup, you can also use the death benefit to create promotional materials needed to launch a successful crowdfunding project. 

Benefits of Investing a Lump-Sum Life Insurance Payment

Investing a lump-sum life insurance payment can help you build generational wealth. So long as there is not an official clause in the life insurance policy that specifically states how the money must be used, you can invest in any type of asset with your lump-sum payment. The following are some benefits that come with investing life insurance payments: 

Preparing for the future: This is the top benefit of investing a lump-sum life insurance payment. While investing in a life insurance policy itself can help your family in the future, investing the payout can then promote even more generational wealth.  

Seeing returns on your investment: The benefit of any investment made is the returns. When returns on investment are good, that is more money in your pocket you can then use for anything. 

Getting out of debt helps you reduce stress: Even a small amount of debt can snowball into a major, crippling financial liability that you’ll be required to make payments on for years. Using the insurance payout to pay off all outstanding debts allows your loved ones to live debt-free, which eliminates a lot of stress. Using your life insurance payout to cover debt also frees up capital you can invest in assets after your debt has been paid.

Paying outstanding debts improves your credit score: As you pay off your debts, your credit score will improve. The easiest and most reliable way to improve your credit score is by making regular, recurring payments on any outstanding debts you have. As you continue to make payments and decrease your debt, you’ll have more financial opportunities in the future thanks to your improved credit profile. 

Issues to Avoid When Receiving a Lump-Sum Life Insurance Payment

As with any other investment, there are certain issues to avoid when investing a lump-sum life insurance payment. Some of the things you’ll need to be wary of include the following: 

Spend wisely: While receiving a lump sum of cash can be exciting, it’s important to spend it wisely. Any investments made with it should be carefully considered. 

Research your investments: All investments can be risky, even ones that claim to be risk-free or low risk. This is why it’s important to research investments before spending money on a major investment class. The point of a life insurance policy is to start building generational wealth, so you’ll want all investments to reflect that. 

Speak to a financial adviser if you need to: Even though it is your money to do what you please with, you can’t assume you know what the best investments will be. Speaking with a financial adviser can help you learn more about the most beneficial investments that you can make. Your adviser can also help you navigate taxes on your investments as you accumulate wealth. 

Frequently Asked Questions


Can you put life insurance proceeds into an IRA?


Yes. So long as you meet the income requirements for an individual retirement account (IRA) and you don’t exceed the annual contribution limits, you can invest life insurance proceeds into an IRA.


Is life insurance paid out in a lump sum?


In most cases, life insurance is paid out in a lump sum as the default option. However, if the owner of the account has requested that the payout be made in increments, you’ll receive a series of payments instead of a single large payment.