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Funerals can be expensive, but having a life insurance policy in place may spare your loved ones from having to scramble to come up with the money upon your death. There are a few coverage options to choose from — and the best one for you comes down to your needs and budget.
Your life insurance death benefit can fund your funeral
If you have an active life insurance policy, your beneficiaries will receive a death benefit when you die. They can then use that payout to cover your funeral costs. However, you have several options to pay for a funeral with life insurance, and the big differences come down to who gets the money and when.
Two types of policies cover funeral costs
Final expense insurance and traditional life insurance each provide coverage for funeral costs.
Final expense insurance
Also known as burial insurance, this permanent policy is specifically designed to cover end-of-life expenses , such as funeral costs and unpaid medical bills. It’s usually marketed to seniors over 65, and a handful of insurers will issue coverage up until age 85.
Final expense insurance is limited to small amounts ranging from $5,000 to $25,000, and it doesn’t require a medical exam.
For these reasons, it’s a good option for people who want to pay for their own funeral but don’t have enough in savings to cover the cost. It’s also ideal for those who are older or who have underlying health conditions or terminal illnesses that may disqualify them for a traditional life insurance policy.
Traditional life insurance
A traditional life insurance policy — like term or whole life — can cover your funeral costs, and in some cases offer additional funds to help care for your family or cover other debts.
With several policy options and riders to choose from, it’s more customizable than a final expense policy. If your income and needs support it, you can purchase up to $1 million or more in coverage.
As long as you pay your premiums on time, your beneficiaries can receive a guaranteed death benefit when you die. While they can spend the money however they wish, many people use it to fund major expenses — like your funeral.
How long it takes to receive a death benefit
You’ll receive the money once the claim is approved. Depending on the insurer, this process can take anywhere from seven to 30 days for a regular policy — or up to 60 days if the insurer needs to investigate the claim further, which may happen if the policy has only been active for a year or two when you make a claim.
That may not be soon enough for most people, who typically plan to have the funeral within a week or two. Though many funeral homes may accept a credit until you receive life insurance funds.
However, if you have a final expense policy, your beneficiaries can expect payment much sooner, typically within one to seven days, as long as all the claim information checks out.
Costs higher than your death benefit are covered by family
If the funeral bill is larger than the life insurance payout, or part of the payout is used to pay off other debts, your loved ones need to find other ways to bridge the gap.
There are a few ways to save on funeral costs. These include choosing cremation over a full-service burial, opting for public rather than a private cemetery and celebrating your loved one in a simpler way — without obituaries and other costly add-ons.
The biggest factor in funeral costs is how you lay your loved one to rest. The average cost of a funeral and burial is $7,360, according to the National Funeral Directors Association. When a burial vault is included, the median cost of a funeral and burial rises to $9135. To compare, a funeral and cremation has a median cost of $5,260.
With this policy, you can arrange as much or as little of your funeral as you like, from planning the ceremony to picking the burial plot. The funeral home is the beneficiary of the policy, and when you die, they’ll use the funds to fulfill your wishes. This is known as a funeral assignment.
Drawbacks of preneed funeral insurance
While preneed insurance can offer peace of mind, there are a few things to watch out for:
It’s tied to a specific funeral home. If you’re considering a policy, research the funeral home’s financial stability and confirm that you can transfer your coverage if you end up relocating.
Your policy should specify guaranteed service. If it doesn’t, your family may end up having to pay the difference between the value of your policy and the amount the funeral home charges.
Check your state’s regulations. States govern the sale of preneed insurance, so run your policy against your state insurance department’s guidelines.
Final expense or preneed insurance, which is better?
Both policies are designed to ease the financial burden on your family when you die — but they have a few key differences.
Final expense insurance is paid out directly to your beneficiaries. While it’s meant to cover end-of-life costs, your beneficiaries don’t have to use the money that way. And it’s a permanent policy, so you must pay premiums for your entire life.
Preneed insurance is to pay for funeral and burial costs only. You buy it directly from a funeral home and can choose to pay for it in a lump sum or installments. And since you’ve pre-chosen a funeral home and the cost of service, that’s a little less planning for your loved ones to worry about and gives you more control over your own funeral.
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If you’re struggling to pay for a funeral upfront, these assistance programs may be available to you:
Ask the employer or union. Many companies offer survivor benefits to families of deceased employers, while some unions can help to pay for funeral costs.
Government agencies. Surviving spouses of Social Security recipients qualify for a lump sum payment of $225. And depending on your state, you may be able to get an extra sum if you’re on Medicaid, Supplemental Security Income (SSI) or Social Security Disability Income (SSDI) benefits.
Veterans’ Association (VA) benefits. Eligible veterans are entitled to a burial in a national cemetery and the VA will cover the costs of the plot, headstone, vault and internment. And, if your loved one died during active duty or due to service-related injuries, you may qualify for an additional benefit.
Fundraiser. Religious organizations, clubs and other associations may be willing to help raise money for the funeral. If not, you can request donations on a crowd-funding website like GoFundMe or Kickstarter.
Speak to your county coroner’s office. You can sign a release form with the coroner’s office confirming you can’t afford to pay for the funeral. The county will then bury or cremate the body, and may give you the option to claim the ashes for a fee.
Look into a FEMA plan. The Federal Emergency Management Agency (FEMA) may pay for a portion or all of the funeral costs if the person died during a natural disaster.
Ask if your funeral home has any extra funds. Some funeral homes donate services or extra items for people in need.
Can I take out a loan to pay for a funeral?
If you’re over 18 and have good credit, you can apply for a loan at a bank , credit union, online lender or directly through a funeral home. And if you don’t meet the eligibility criteria, you can ask another relative to co-sign the loan with you.
Some lenders offer special personal loans, called funeral loans, designed specifically for covering the costs of a funeral. The proceeds from some funeral loans are sent directly to the funeral home.
Pros
Cons
Receive the money quickly, sometimes in as little as one business day
Funds can be sent directly to the funeral home>
Funds can be used to pay for funeral expenses then any remaining money can be returned to pay down the loan
Personal loans often have high interest rates
Personal loans depend on your creditworthiness, and it may be difficult for some people to get approved
It can take months or even years to pay off a personal loan once you add in interest
Before signing off on a loan, compare interest rates from a few lenders and weigh up whether it’s worth getting into debt to pay for a funeral.
Compare burial insurance companies
Bottom line
A life insurance policy can ease the financial burden on your family when you die — especially since they’ll likely need the money for your funeral within days or weeks of your death. If you’re a beneficiary, aim to file a claim right away so you receive the funds sooner. Consider funeral insurance to have funds earmarked for burial costs.
Katia Iervasi is a lead writer and spokesperson at NerdWallet and a former editor at Finder, specializing in insurance. Her writing and analysis on life, disability and health insurance has been featured in The Washington Post, Forbes, Yahoo, Entrepreneur, Best Company and FT Advisor. She holds a BA in communication from Australia's Griffith University.
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