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You are right to think in terms of opportunity cost - but most likely, you will earn more by investing.
The opportunity cost of all-cash real estate purchases is generally high, and low interest rates make it higher. Savvy real estate buyers will take out mortgages even when they are flush with cash because they understand this.
It is the financially unsophisticated that will tell you all debt is bad no matter what, and that if you have the cash, why would you possibly want a mortgage?
You have to be comfortable actually investing though. Savings alone will not suffice. You will want a good, balanced stock/bond portfolio.
An effective strategy here would be to take out a mortgage, invest the cash, and let the dividends/interest income fund your mortgage payment. This way, you pay unearned tax rates on dividends, and get to deduct your mortgage interest at ordinary rates. Plus your money is invested.
I would wait the 6-12 mths you're talking about waiting and then buy something in cash. We are close to the same age and while I can't imagine what you're going through I think if it were me I wouldn't care about returns so much as security.
I recommend investing fully in retirement accounts, however, with the amount of cash you are talking about, that won't easily be moved into retirement accounts even if you maxed contributions each year from your paycheck while using the money to live on. As a result, I'd strongly recommend buying a house outright and paying cash for the entire thing. Then utilize the rest to supplement your income so you can cap your 401k and IRAs.
If you decide to do a mortgage, do it at 15 years for the lower interest rate and using bond index funds with low turnover and dividend growth portfolios to generate income that pays the mortgage. For this to really be viable, you'd need to check with a tax planner to see the implications for you. If you are not in a situation where you would gain from itemizing, then the tax deduction on the mortgage would be useless (unclaimed). It might still be viable to find some funds that will pay rates exceeding what you would need, but either way you NEED to cap out the retirement accounts each year by using cash on hand because each time you do it you are taking the full balance that gets transferred (Effectively) into your retirement account and making it immune to taxes.
Lastly, your husband was a good man to carry so much life insurance. It's one of the few ways we can really make sure our loved ones know that we plan to provide for them, no matter what comes our way. My condolences.
PS. You mentioned taking some time to be with the kids. Whatever you do, do NOT put a single dime of this in their name. If you do, it will ruin their chances for financial aid. Instead, provide assistance to them AFTER they finish college, otherwise the assistance must be recorded. If you have the money moved into retirement accounts by then, the entities involved in financial aid are not allowed to look at it. The same goes for the equity in your house. If you are using a portfolio of dividend stocks and bonds to pay the mortgage, they can look at that portfolio and say you are wealthy. If the house is paid off, they are not allowed to look or ask about the value of the house. If your children are nearing college age, this could be a significant issue. Last note on helping kids: If you want to help provide for them, open IRAs in their name and fund those--which again, the financial aid entities are not allowed to know about--so that the money can compound for them for the next 40 to 50 years. If you do this, invest in several indexes and set it to rebalance each year. They may not understand when they are young, but when they can have a couple million in retirement--after adjusting for inflation--they will understand your wisdom.
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