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How to pay for a funeral with life insurance
The proceeds of your policy can give your family the funds they need so they can focus on grieving.
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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.
What's in this guide?
How can I use a life insurance policy to pay for a 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.
What types of life insurance policies cover funeral costs?
These two policy types can take care of 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.
Life insurance
A traditional life insurance policy — like term or whole life — can also cover your funeral costs.
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 the policyholder’s funeral.
When will I receive the life insurance payout?
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 had only been active for a year or two, for example. That may not be soon enough for most people, who typically plan to have the funeral within a week or two.
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.
What happens if the life insurance payout is less than the funeral cost?
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 will need to find other ways to bridge the gap.
There are a few ways to save on funeral costs. These include choosing a cremation over a full-service burial, opting for a public rather than private cemetery and celebrating your loved one in a simpler way — without obituaries and other costly add-ons.
It varies, but the biggest factor 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. To compare, a funeral and cremation costs an average of $6,260.
Can I prepay for a funeral?
Yes. You can buy preneed insurance from a funeral home, and coverage is typically capped at $25,000.
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.
What are the 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.
Which is better to pay for a funeral: final expense or preneed insurance?
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.
On the other hand,preneed insurance is purely there to pay for funeral and burial costs. 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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What if I can’t afford to pay for a funeral?
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.
- Get help from a government agency. 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.
- Get 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.
- Start a 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.
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.
In some cases, you can receive the money in as little as one business day. But 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.
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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.
To make the grieving process a little easier on your loved ones, compare life insurance policies.
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