A SIMPLE GUIDE TO THE MANY WAYS OF PAYING FOR YOUR FUNERAL
Your own mortality isn’t something you usually want to think about despite it being a fact of life. Planning for your own mortality, though, can bring peace-of-mind to your families and loved ones.
Funerals aren’t cheap affairs and loved ones are often surprised by the price tag. Planning in advance eliminates some or even all of that surprise and helps lessen the financial burden of your passing.
Deciding how to pay for your funeral and final expenses now means your loved ones will be able to focus on grieving and healing after your passing.
Read on to learn more about the costs associated with a funeral and why it's so important to plan for those costs ahead of time.,
Or, skip ahead to one of the following sections.
HOW MUCH YOUR FUNERAL WILL COST
There’s no universal flat fee for final expenses. Many smaller fees and services contribute to the cost of a funeral.
The FTC reports that a casket alone can cost anywhere from $2,000 to $10,000.
That’s on top of paying for the other funeral costs, such as:
- The cost for the funeral home to conduct the process
- The cost to transfer the deceased’s remains
- Embalming and preparing the body for viewing
- The cost of holding a ceremony
- Transportation, flowers and other memorial materials
Add onto that the cost of an obituary in your local newspaper, a cemetery plot and a tombstone, and you’ll be looking at a fairly hefty price tag.
What’s all that add up to, then?
According to information compiled by The Huffington Post, an average funeral and burial could cost upwards of $11,000.
A funeral and cremation is substantially more affordable but still costs a median of $6,078, according to the National Funeral Directors Association.
That’s a good chunk of change to come up with when your loved ones are still reeling from a tragic loss.
In fact, between 2004 and 2014, final expenses increased from 28.6 to 29.3 percent, according to the National Funeral Directors Association.
Planning ahead can save your family money and energy when it comes to paying for your funeral.
THE IMPORTANCE OF PLANNING YOUR FUNERAL COSTS AHEAD OF TIME
Death is a part of life that no one can avoid. While we all wish to live long, healthy and happy lives, accidents do happen and can rip us away from our loved ones before we’re ready. We want to leave our families in the best situations possible, including financially.
Planning for your funeral and final expenses ahead of time lessens the financial burden your family may have to contend with upon your passing.
Bills can also add up prior to someone passing. Medical bills aren’t the only concern, either.
What if a terminal illness strikes during your working years or a tragic accident happens? What happens to your family’s financial situation after it loses your income?
Proper planning gives your loved ones time to grieve, mourn and heal without the added burden of wondering how to pay for your funeral and final expenses.
GOVERNMENT PROGRAMS FOR COVERING FUNERAL COSTS
Unfortunately, there’s very little government assistance when it comes to paying for your funeral.
Government programs are typically available only to low-income families or provide little more than direct burial — burial in the immediate days following one’s death without any viewing or service.
Social Security lump-sum death benefit
The Social Security Administration provides a lump-sum benefit of $255 to the eligible surviving spouse or children of someone who was receiving social security benefits.
You can’t pay this death benefit to a funeral home or your estate. Only your surviving spouse or children can collect it and they only have two years after your death to do so.
Of course, $255 isn’t a whole lot of cash to plan a funeral with. While your loved ones are entitled to this benefit after you pass, it shouldn't be the only final expense planning you’ve done.
Medicare Medical Savings Account
At 65, you enroll in Original Medicare (or younger, if you suffer from certain disabilities) — even if you’re working. While Medicare provides health coverage, it doesn’t offer any coverage for funeral or burial expenses.
A Medicare Medical Savings Account is part of a Medicare Advantage Plan — or “Part C” of Medicare. It’s a high-deductible plan offered by insurers contracted with Medicare that helps you pay for your healthcare costs.
If you enroll in an MSA plan, Medicare will deposit a small amount of money into the plan every year. It's kind of like a savings account at your bank. You can use these funds to pay for the healthcare costs that aren’t covered by Medicare.
If the year ends and you still have money in the account, that money carries over into the next year, with the new year’s deposit adding onto it.
How’s that help you pay for your funeral, though?
After you pass away, some of these funds can pass through to a beneficiary, such as your spouse or a child, who can then use them to help pay for your final expenses.
Medicaid is a state-run program with support from the federal government. It's designed to assist low-income individuals and families with healthcare costs.
If you qualify for or are enrolled in Medicaid, you may be entitled to some sort of final expense benefit.
But there’s a catch.
Each state has its own Medicaid rules. That means, your state might offer different benefits and coverage limits than another. Not all states assist with final expenses, either.
If you’re curious about what benefits your state provides through Medicaid, call your local Medicaid office to ask.
COVERING THE REMAINING COSTS
While government programs can help lessen the cost of your final expenses, you’re still on the hook for covering the significant remainder.
Luckily, there are a few different options for you to consider when it comes to paying for your funeral.
Life insurance is one of the most popular methods of paying for final expenses. According to LIMRA, 60 percent of Americans had life insurance in 2015.
You can use the death benefit of your life insurance policy to pay for funeral and burial expenses — whether you’re covered by term or whole life insurance.
When you pass away, your life insurance policy pays out the death benefit to the beneficiary noted on the policy. The beneficiary is then able to use those funds to help pay for a funeral and burial or cremation.
Some funeral homes will even allow you to assign a portion of the death benefit to them to cover final expenses. This means your insurer will cut two checks: one for your beneficiary and one to the funeral home for the cost of the bill.
Life insurance is one of the few ways for money to bypass probate — the lengthy (and sometimes expensive) court process that can tie up your estate until all creditors and debts are paid.
Payable-on-death account (aka Totten trust account)
A payable-on-death account, also called a Totten trust after its creation by a ruling in 1904, isn’t as complex as the name might lead you to believe. In fact, you’re probably already familiar with this type of account without even realizing it!
A payable-on-death account is a bank account with a named beneficiary who receives the funds upon your death.
A POD account functions in the same way as your checking, savings or money market account. You can use it the same way you would a regular account.
Your beneficiary cannot access or control the funds until your death, making this a safe way to grow a fund to cover your final expenses.
Because there’s a named beneficiary, a POD account bypasses probate in the same way life insurance does. This means your beneficiary can access the funds you’ve saved after presenting the bank with proof of identity and your death certificate.
Bank accounts without beneficiaries can become caught in the probate process. So, a POD account is an excellent way to ensure your loved ones have access to this money for your intended purpose when they need it most.
Funeral homes sell pre-need or pay-in-advance plans that help you pay for your funeral while you’re still alive.
You can lay out your funeral desires with the funeral director, such as choosing your casket and deciding on the specifics of the burial or cremation services.
You can pay for your pre-need funeral arrangements in installments or a one-time lump sum. The funeral home will put these funds into a trust that pays out upon your death or use them to purchase an insurance policy on you with the funeral home as the designated beneficiary.
A huge benefit to these types of plans is that you lock in the cost of the cremation services. That means, you don't have to worry about the effect of inflation on final expenses.
While pre-need funeral arrangements may make sense for your specific circumstances, it’s incredibly important to read over the details of the contract.
It’s also important to consider what will happen if you move away or if the funeral home goes out of business before your death.
You may be better served with a funeral plan that’s portable and under your control, such as final expense life insurance.
Final expense insurance
Final expense insurance, or burial insurance, is life insurance designed to cover your funeral costs.
Like whole life insurance, final expense insurance remains in effect as long as you pay your premiums. Premiums never increase and the death benefit never decreases.
Final expense life insurance is particularly useful for individuals over 50 years old and seniors who may find that other policies are too cost-prohibitive to purchase due to age or medical conditions.
Your beneficiaries can use the death benefit in any way they seem fit. But, it's often intended to cover the cost of your funeral and final expenses.
The death benefit bypasses probate as well, going directly to your beneficiary. This provides peace-of-mind that your final wishes will be realized and adequately paid for.
WHEN DOES IT MAKE SENSE TO HAVE FINAL EXPENSE INSURANCE?
When it comes to planning for your funeral, final expense insurance is an effective and reliable option. Final expense life insurance guarantees to pay out upon your death as long as you make your payments.
If you don't already have a life insurance plan, a final expense insurance plan is a smart choice. It lessens the financial burden that your death could have on your family, serving as a sign of your unceasing love and devotion.
What about if I already have whole or term life insurance?
Many people buy term life insurance during their working years and choose a term that expires once they've paid off major bills and debts. The goal of term life is to outlive it and retire with fewer financial worries than when you purchased it.
But what about whole life insurance? Isn’t final expense insurance redundant when compared to whole life?
Whole life insurance has a level premium and a level death benefit. That means the death benefit never decreases, but it never increases either.
Many who own a whole life policy have owned it for years, so the death benefit may not provide as much coverage as they’d hope.
A separate final expense policy can provide the extra cushion needed to cover your expected burial and funeral costs and any remaining bills or debts you might have accumulated since you initially purchased your whole life policy.
This means that final expense insurance would work in addition to your other life insurance policy.
If you’ve accumulated more debt than you expected when you purchased your original policy, or you want to account for the rising costs of burial expenses, a final expense insurance policy can help you make up the difference.
What’s the difference between final expense and whole life insurance?
Despite being similar to whole life insurance, final expense insurance is geared more towards covering final expenses and funeral costs.
The biggest differences between final expense and whole life insurance include:
- Size of death benefit
- Cost of premiums
- Ability to purchase a policy
Some whole life policies may require you to purchase a minimum death benefit — $25,000, for example. This requirement could make premiums unaffordable. This is especially true when your age and health are taken into account.
Final expense policies are, instead, on the smaller side of the spectrum. They range between $2,000 and $40,000 of coverage — the perfect amount to pay for your funeral.
This difference means a final expense policy is usually more affordable than a larger whole life insurance policy.
You can use our online quoting tools to calculate final expense insurance costs.
For example, a 55-year old non-smoking male in Florida could purchase a $10,000 final expense policy for as little as $35.09 per month. The same man can expect to pay as little as $50.30 per month for a guaranteed-issue policy.
Some final expense policies may be “graded.” Graded policies generally take two to three years before the full death benefit pays out. If you were to pass away during the graded period of such a policy, your beneficiary would receive a refund of all premiums paid, plus an additional percentage. In the end, your beneficiary would still receive more than was paid into the policy.
Most term and whole life policies require you to medically qualify to apply for coverage. Graded policies help account for a lack of medical questions when purchasing the policy, or for a policy that’s guaranteed issue.
Is final expense insurance guaranteed issue?
You’re only healthy until you’re not. Whole and term life insurance typically requires you to medically qualify for coverage. That means you might find yourself unable to purchase such a policy, especially as you get older.
Luckily, some final expense life insurance policies are guaranteed issue.
Guaranteed issue final expense insurance means you can purchase coverage regardless of your medical conditions. The only requirement for getting covered by guaranteed issue final expense insurance is your ability to pay the premiums.
This means that final expense insurance is an excellent option of burial insurance for seniors to invest in for two reasons:
- It provides the opportunity to have a death benefit large enough to cover funeral costs.
- Depending on the specific insurer, you may not even need to health qualify!
How best to pay for your funeral is ultimately your decision to make. You need to consider your finances and any plans you’ve already made, as well as your last wishes.
It can be hard to think about your mortality. But planning ahead, no matter what option you choose, is just another way to show your family how much they mean to you.