Should a Widow Pay Off Her Mortgage?

Susan, a referral from a colleague, is a recent widow. She called and wanted to know my thoughts on using her late husband's life insurance proceeds to pay off their mortgage.

On the surface this seems like a reasonable idea, however, I didn't want Susan to make a quick decision she may regret later. We met to review the pros and cons of her idea, including a special rule on the home sale exclusion amounts for widows. Here's what we discussed:

Reasons to pay off the mortgage

There are times when it makes sense to pay off a mortgage after a spouse passes away, here are six examples:

1. The surviving spouse wants to stay in the house and doesn't plan on moving.

If a client wants to stay in the house, paying off the mortgage can provide peace of mind. However, it's not a good idea to pay off a mortgage if that leaves the widow or widower house rich and cash poor. It's best to ensure there is enough left over for living expenses. Also, if the surviving spouse plans on staying in the house, the house may need updating or improvements. It's a good idea to keep some money on the side