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Did you know that the typical funeral costs between $8000 and $10,000 in the United States? While families avoid discussions on death and funeral arrangements at all costs, it’s something that needs to be planned well in advance. This is one of the primary reasons why so many experts stress the important of financial planning and purchasing financial products like life insurance.
If you’ve finally had that dreaded discussion about death and you’re trying to plan how to pay for a family plot or cremation, there are plenty of different funding options to consider. You can go the savings route and put away a specified amount of money that is allotted strictly to go to funeral costs like the burial, plot, casket, headstone, and ceremony. When you’re choosing this funding option, you’ll need to decide what type of investment or savings account to open which can be a feat in itself. Start comparing life insurance rates now by using our FREE tool above!
Another option is to purchase life insurance, which can pay for a long list of financial obligations that arise when you’re gone and your family is left to handle all of the financial affairs. While funerals certainly aren’t required, they have become a time-honored tradition to celebrates one’s life and their accomplishments. Out of all of the line items that beneficiaries use life insurance to pay for, funeral costs are the most common across the board.
Why is life insurance such a popular option to pay for final expenses?
Death is inevitable and if you want a great send-off, it’s inevitable that you will have a funeral. Since not many things in life are certain, aside from taxes, of course, it’s nice when you can start to plan for something that you know will come sooner or later.
Drawbacks of Using Savings for Final Expenses
One of the problems with saving to pay for rising funeral costs is that you simply don’t know when you might pass away. Most people plan on living a long life, but people, unfortunately, fall ill and suffer tragic accidents. If a person were to pass away just months after opening their final expense savings account, they might only have a small portion saved to pay for the cost of the funeral. This puts a financial burden on grieving family members who may already be financially strapped themselves.
According to the National Funeral Directors Association, the total cost for a funeral with burial and viewing has gone up just over 28% over the span of a decade.
If you’re lucky enough to live for several decades like you’ve planned, this means that you’ll need your investment returns to keep up with the inflation, which is not common unless you choose a very risky investment platform. Since all financial planning experts will recommend that you choose conservative, slow-growth savings vehicles, it can be hard for your savings account to keep up with the median cost for a funeral. This is why life insurance is such a smart alternative.
The Advantages of Buying Life Insurance to Cover Final Expenses
Wouldn’t you rather spend your hard-earned money on things in life that you look forward to? When you think of saving, you don’t necessarily want to think about putting a large sum of money away for when you’re gone. Instead, you can spend pennies on the dollar for a large amount of coverage that will pay for a long list of financial burdens your family could take on when you’re deceased.
Perhaps the biggest advantage of life insurance is that you’re paying a small premium for a specified death benefit. You can choose a minimal policy that provides just barely enough to pay for final expenses, or you can choose a larger sum that includes coverage for the mortgage, living expenses, income replacement, education costs, childcare and more.
Once you apply and the policy is approved, you have peace of mind that as long as that policy stays in force, the life proceeds can help your family cover the costs. It doesn’t matter if you’ve paid into the policy for a week or for a decade if the policy is active, that benefit is there for your beneficiaries so that your loss isn’t a great burden. It might be nerve-wracking to apply and complete all of the medical underwriting tests, but in the end it’s worth the time and stress.
Life insurance will give you peace of mind that when you leave your family won’t have to scrimp and scrape for money so that you have the celebration you deserve.
You’ll also know that what’s left over can be used so that they can live comfortably. No worrying about the return rate on your savings plan or about the possibility of dying before you save enough to be buried because you have life insurance and you’ve thought everything through.
Which type of life insurance is right for final expenses?
Now that you’re familiar with the advantages of buying life coverage to pay for funeral costs, the next step is choosing the right policy to apply for. There are two main categories of life insurance: term and permanent. Under each umbrella, there are several different branches of insurance that have their own advantages and drawbacks. Some policies are suited to carry for a short or temporary period of time and others are best suited to carry for a lifetime. Let’s take a look at both:
- Term Insurance
Term insurance is a temporary plan that can last for as little as a year or as long as 30 years. When you buy a level term insurance plan, it’s based on your age at the time of application and will typically have fixed premiums for the entire period.
While this is an affordable option to provide protection for temporary financial burdens that will go away, it’s not so affordable at renewal as you age and your premiums rise. This is why term insurance is best to cover your mortgage and things like dependent costs and income replacement.
- Permanent Insurance
If the entire purpose for buying insurance is to cover final expenses, a permanent plan is more appropriate. Permanent plans like universal life and whole life are structured to provide you with coverage for a lifetime by using a built-in investment component to grow cash value into the policy. As you age, the policy values will start to pay for the pure insurance component so that your premiums don’t go up when your rates would normally go up.
Permanent insurance is best because it always remains active. You can invest in a policy strictly for final expenses or a generic cash value policy with a low death benefit to keep premiums affordable. By paying this each month to keep it active, you’ll know in the back of your mind your family won’t have a problem affording the funeral.
How to Setup Your Life Insurance Proceeds Payout
The application process can be a bit daunting. It’s not unusual to just put your spouse, your siblings, or your adult children as beneficiaries so they are equipped with the bank account to handle everything. This is typical, but it’s not the only way that the policy can be structured.
When leaving a large chunk of money to family or to friends, no matter how much you trust them, you might wonder how it’ll be used. There are ways to specify dollar for dollar how it’s to be used, but that involves setting up a trust and then naming a trustee. If trust is not the factor, you might simply want to make paying for the immediate expenses easier for the ones that you love so much. In either scenario, it is feasible to have a policy with your funeral home as the beneficiary.
How to Designate the Funeral Home
Not all funeral homes accept direct payment from life insurance policies, so you’ll need to ask around and do your homework before assuming you’ve found the right choice. Once you have chosen the funeral home where you would like to be buried or cremated, you’ll need to contact them directly and ask them for the appropriate paperwork.
The funeral home should have an assignment form that includes all of the legalese on what must be said on your policy. This assignment form will make the funeral the primary beneficiary and then designates another party to receive leftovers. It may also appoint the person who will be in charge of the funeral services.
It’s always important to discuss what you want and what you don’t want after you pass. If your family is on the same page as you, they can honor your wishes and spend the appropriate amount of your money. To avoid problems, make your funeral home your primary beneficiary and then you’ll know your family followed your detailed wishes. Start comparing life insurance rates now by entering your zip code in our FREE tool below!