The death of an insured family member usually terminates an income stream that the family has relied upon. The costs of daily living for survivors, final expenses for the deceased insured, and emergency repairs and replacement associated with events surrounding the family member�s death create an immediate need for funds. Families having an adequate source of emergency funds in liquid holdings, such as money market funds, bank balances, cash management accounts, life insurance cash values, and so forth, may easily meet any need for immediate cash following the death. However, the need for additional funds becomes urgent if the family does not have an emergency fund or has depleted it immediately prior to the death.

One of the goals of proper planning is to make sure the emergency fund is adequate to meet the survivors� needs until life insurance proceeds and other potential sources of funds become available. Life insurance proceeds often provide a significant portion of the emergency fund itself. (This reliance on the immediate availability of death benefits should not be associated with policies that are still contestable�in force less than 2 years. There could be some delay in settling claims of contestable life insurance polices. After a policy becomes incontestable, however, it is reasonable to count on quick availability of death benefits.)

Surviving family members will be faced with the financial demands of maintaining the household and meeting the needs of household members. There will be continuing costs for food, transportation, and utilities. Mortgage payments may have to be continued and, even if they are insured, will have to be paid temporarily. It will take a while for the survivors to ascertain whether or not there is current life insurance on the mortgage and to file a claim if coverage exists. In the absence of coverage, the surviving family members will have to continue making mortgage or rent payments.

The surviving family members often, at least temporarily, continue their established lifestyle and generate the same level of expense that they encountered before the death. This means a continuation of bills for cable TV services, magazine subscriptions, newspapers, club memberships, entertainment, and miscellaneous costs. If the surviving family members are aware of their financial situation and they have planned for the death contingency, they will know whether or not they can afford to maintain the same standard of living or if cost cutting will be necessary. Even if the household budget does have to be trimmed, it is unrealistic to expect the survivors to cut back on their expenses immediately after the death. Changes in a family�s living standard are usually accomplished through a certain amount of trial-and-error adjustment over a period that often exceeds one year.

Private school tuition for the children is a good example of a cost that cannot necessarily be trimmed immediately. If at all possible, the children are often kept in the same school to complete the year in progress. This is much easier if the tuition has been paid in advance, but in the case of ongoing monthly tuition bills, the family may be forced to curtail other expenses in order to finance the school costs. At the end of the school year family members will have to decide what level of school costs they can afford over a longer period. This may mean a move to less expensive private schools or enrollment in public schools. In some cases, the transition may require many years as the students gradually move to less expensive forms of schooling each year.

Another aspect of the time required to change the family unit�s standard of living is the difficulty of getting individuals to change their habits. Children who are used to unrestricted use of air conditioning, heating, and local transportation will have to break old habits and learn new ones in order to cut costs further if that becomes necessary. Some adults require even longer transition periods than children.

The emotional turmoil following the death of a close family member usually lasts about one year. As survivors cope with the emotions of anger, denial, depression, bargaining, and finally acceptance of the death, the grieving process often distracts them from concentrating on financial issues. They may forget to pay important bills, such as premiums on homeowner�s and auto insurance, that could worsen their financial position. Creditors insisting that they be paid immediately can be an additional source of emotional stress at this time. Survivors who are able to convince these creditors that adequate life insurance will be available are usually not pressed for collection until proceeds have been received.

So far the focus has been on routine living expenses. Quite frequently a family death sets off a chain of events that generate additional costs, such as transportation for children, parents, and other family members to the funeral. These expenses can be significant if the family members live far away. Feeding and housing these temporary guests can also be expensive.

Burial or cremation expenses are by no means the only expenses associated with death. The final expenses depend very heavily on the individual circumstances of each death. Some people undergo a lengthy period of hospital treatment and incur large medical bills. Their deductible and copay portion of medical care costs and the full cost of any care or treatment not covered by insurance could accumulate to a big debt. Home care or convalescent care is rarely covered by private insurance and has limited coverage under medicare for those over 65. Prolonged medical care and rehabilitative treatment will often leave the family�s finances devastated even before death occurs. Following death there are usually funeral expenses (and sometimes transportation expenses to get the body back to hometown funeral directors); cemetery or mausoleum charges are also usually incurred. The expenses for the final disposition of the body, although they can be rather modest, are subject to a wide variation in services provided and generally end up being a significant expense.

Many of the final expenses associated with a death are often incurred after the funeral. There are the costs of settling financial and property matters in closing the deceased�s estate. Included are court fees related to the appointment of an executor or administrator to manage and settle the estate. There may be fees charged by the executor or administrator and attorneys� fees in addition to the court costs for probate if there is a will.

Managing the estate prior to final property disposition may be extremely complex. This may require the services of specialized investment managers and/or real estate managers to safeguard the property until it can be sold or distributed. The provisions of the will and the nature of the property involved may necessitate a long period of estate management before the estate can be closed. Some assets may be hard to sell in the economic conditions following death. The terms of the will may require the establishment of trusts and other legal work that is also very time consuming. Even the task of locating heirs or other beneficiaries of the estate may require a lengthy search to cut through the bureaucratic red tape to obtain death certificates for all potential recipients who predeceased the insured. The longer this process takes and the more complex it is, the more it will cost.

The administrator or executor has responsibility for settling all the outstanding debts and closing out all the financial affairs of the deceased. This includes filing tax returns and paying tax liabilities. This process is much more easily addressed when there is adequate cash available through life insurance policy proceeds. It is usually not advisable to have such proceeds payable directly to the estate. Rather, they should be paid to a trust or to an individual with an interest in the estate. Cash can then be made available to the estate by cash purchases of assets from the estate or loans to the estate.

The size of the estate and the nature of the assets it contains heavily influence the optimal planning strategies for minimizing taxes and accomplishing individual objectives. Paying policy proceeds directly to the estate is less of a problem for small estates with no federal estate or gift tax liability than it is for large estates. The most important point is that any planning must be done in the appropriate manner prior to death to achieve best results. For sizable estates where there have been transfers of life insurance policy ownership, it would be even better if the planning is done at least 3 years prior to the death. Policy ownership and beneficiary designations in effect, as well as trusts previously in effect at the time of death, will govern tax treatment. The estate may be subject to much higher taxes than would have been payable if there had been appropriate preparation before death. Even if an administrator or executor knows how to minimize taxes, his or her hands will be tied unless assets have been properly positioned and the necessary documentation, trusts, and other instruments are in place before the insured�s death.

Although accidents and natural disasters are a relatively minor cause of death (5 percent of United States deaths), people who die from accidents may leave survivors with serious property damage that needs to be corrected immediately. Surviving family members may have to deal with salvaging, repairing, or replacing such damaged property. Just about any personal or real property can be damaged or destroyed by the same events that cause death�autos involved in traffic accidents, homes and their contents destroyed by a wind storm or other natural disaster, utility lines damaged by an earthquake or lightning strike, water wells polluted by flooding, and any number of other potential losses.

The important point is that surviving family members may be faced with an immediate need for cash in order to cope with the property damage coincident with the death. For example, they may have to purchase a replacement auto or rent alternative temporary housing. Even if the property loss is insured, the family may have to spend a significant amount of cash before a property insurance settlement is available. A homeowners policy, for example, requires that damaged structures be temporarily repaired or protected in order to prevent additional damage from water, wind, theft, and many other sources. Failure to take such measures could drastically reduce the amount of the eventual property insurance claim settlement.

Some property damage is not insurable at all, such as flood damage to a residence. The family auto may not be covered for the physical damage to the vehicle caused by the fatal collision. Death benefits from the life insurance policy, however, are usually available very quickly. If the death and the property destruction occur at the same time and the claims are filed for each on the same day, the claim for the death benefit will probably be settled much sooner than the claim for the property damage. Consequently it is more likely that the life insurance proceeds will provide an immediate source of emergency funds following a death associated with property damage than will the property insurance. Moreover, the cash value of a life insurance policy can provide emergency funds for property loss in cases where there is no death in conjunction with the damage. For example, a policy loan may be the quickest way to obtain the cash needed to buy plywood and tarps to seal up a damaged house after a storm or fire.

The urgency of caring for surviving family members may necessitate extra expense while damaged property is being repaired. For example, in a rural area the family might have to rent or buy a mobile home that they can move to the site so that they can care for livestock. The duration of such arrangements will depend on how long it takes to repair the damaged property. After a severe storm, materials and craftsmen may be in short supply and thus delay any attempt to rebuild. Such delays can cause drastic increases in the amount of funds necessary to recover from the property damage. Ideally families will have an emergency fund that is adequate to cover the worst possible situation. The sad reality is that too few families have adequate emergency funds, if any, available.