After house payments, the college fund and retirement, final expenses are the major worries that most people have.
As the average working American would struggle to pay for a $1000 emergency that happens today, covering the nearly $10,000 price tag of a sudden funeral seems daughting.
Of course, we all want the funeral of a loved one to show them the respect and dignity they deserve, but how can you pay for something with money you won’t have until further in the future?
In the USA, you can pay for a funeral in installments through most funeral homes. However, financing a funeral will result in it costing a lot more than the original package. In almost all cases this can be avoided by planning ahead before death and/or doing your research to lower the overall price.
When someone passes and we have to organize a funeral in a short amount of time it can be overwhelming.
We are emotional and the pressure to get things done can be hard if you are not in the best financial situation.
Below are some tips and ways to help guide you through this situation and hopefully save you some money.
What are the different ways people can pay for a funeral?
For many of us, this is the first time that we are having to plan and pay for a funeral. There are a lot of options out there to choose from and you may not know, but most of the time payment for a funeral is due before the services will commence.
Everyone should have a plan about what they want to be done and how they would pay for it.
There are a plethora of ways to pay for a funeral but not all methods of payment are equal. Each type of payment has its own benefits and risks. I am not advocating for you to choose one or another as everyone’s situation is different.
You have to choose which one is best for you and your family at this difficult time. Below I will briefly go over some of the different types of plans, trusts, and policies.
This list is not fully inclusive and the rules and regulations will vary from state to state. Making sure that you read your policy and understand it is up to you.
A Prepaid Funeral Plan
A prepaid funeral plan is a sensible option for people trying to pay for a funeral in installments and in advance. You can start paying for it whenever you choose and in small, usually monthly installments. This way you can have the type of funeral you want and pay it off over time.
With this option, it sometimes also allows you to pay it off after the person has died, but they may want the full amount before they have the actual funeral service. It will vary on the plan you sign up for so make sure that you read the fine print and ask questions.
These funeral plans with a preneed contract paid for alongside an insurance policy, trust, or annuity can go really far when it comes to paying for the whole funeral.
Some of the funeral providers can and do offer a guarantee that will “freeze” the price. This means that what you are paying now is all that you will ever be paying and they cannot change it.
If you are younger or expect to live 10, 20, 30 years more, this is a great way to pay in small installments. You also have the option to pay it all at once or even in a set number of installments.
These funds that you are playing go to a specialized insurance company and can offer different tax advantages. These plans can also be moved from one area to another. This means if you move you can use a different funeral home, note that not all plans allow this benefit, and be sure to read carefully.
This is another option for those that have the funda and are planning ahead. The rules and lass that govern these will vary more by the state than the preneed funeral plan. For instance, some states will allow you to pay installments or a certain percentage of the total while some states need the whole payment upfront.
This also applies to if you move, with some states have reciprocal laws many do not, and the policy may be void or only valid in certain states.
When signing up for this trust it would be advantageous to have a professional or someone else along to help you go through all the paperwork and make sure that you understand all the fine details and rules on the portability of the fund.
There are three main types of trusts that are used irrevocable, revocable and a Totten trust.
Irrevocable Trust– An irrevocable trust is one that can not be changed or dissolved. If it was to be changed, the trustee would have to grant permission.
As soon as you put the money into this trust the money is not yours to touch or handle. The one caveat is that you are able to reassign that irrevocable trust to a different funeral home if you change your mind or location. But remember you can never get your money back.
Revocable Trust- This type of trust is a bit different. With a revocable trust, you can cash it out or cancel it anytime though there may be stipulations and penalties if you do so.
With this trust though the money is owned by you or the trustee and you can get the interest directly from it. The money will be transferred to the beneficiary after the person has died.
Totten Trust- This trust is probably the most simple and easiest to understand. This account you set up with your local bank and 100% of the money you put into it you get to keep, this includes the interest as well. You can take out as much or little of the money as you need or want with no penalty.
When someone dies the guarantor or next of kin will get access to the funds to use for the funeral as they see with. Hopefully, a Will has been made to make things easier for the family to decide where the money goes. Even though this one is pretty straight forward, I would still recommend getting a professional to help you set it up.
These are another way that one can fund a funeral and pay for it over an extended period of time where it is in installments or deductions from your paycheck.
These are called life insurance policies or a final expense policy and can be paid for by the actual person or the family. These usually will cover most of the costs of the funeral and burial.
One of the issues with this is that with most of them you are reimbursed or they cut a check, which could take weeks or months to payout after the death even if there are no issues.
In this case, you will have to first payout from your own pocket. The three main types of insurance plans are term, whole, and employee life insurance.
Term Life Insurance- This type of insurance policy’s main goal is to give the beneficiary the deceased person income in the event of their death.
You pay for it monthly or in installments throughout the year. It is supposed to replace what they normally make as a wage and you can use this to pay for the funeral though you can pay for anything with it.
It is only as good as long as the plan is signed for and it does not gain interest. The check can also take time to get to you so you will have to pay for the funeral up front and wait for the check/ deposit.
Whole Life Insurance– There are a few types of this policy but one is called “final expense” and is used to pay directly for the funeral. They are usually again paid installments or monthly.
They are also less expensive than most life insurance policies. The money is a set amount usually around $18,000 or any amount that you agree upon and it doesn’t have any restrictions.
This means that you can use the money for whatever you want with no questions asked. For example, it can be a medical, utility, or any outstanding bills the deceased has left behind.
Employee Life Insurance- This one may be compulsory or you have to opt into it depending on your company. Most decent companies will offer you these types of insurance at a reduced rate as a benefit for working for them.
The issues arise when you retire because most of these only last as long as you are employed by them. Then you have to get your own policy and since you will probably be older it will cost more.
Other types of non-traditional funding
Advanced Funding- If you have a plan and cannot access the money yet, some funeral homes and businesses will front the money. They then will take a fee/commission and take the full amount of the death benefit.
Personal accounts, CD’s and Pay-on-Death Account- Some people will set up one of these accounts with a bank. This allows you to give the money to your family without the process of probate.
You can also put into it in lump sums and/or installments as your life goes on. The issue with this one is that inflation takes over and your money is not growing so if you do not account for this the final sum may not be effective to cover the end-of-life costs. They also may be subject to more taxes if not set up and withdrawn correctly.
Credit Card or Funeral Loan- This is probably one of your last options and it can be expensive. Credit cards have high-interest rates and if not paid back quickly can add up fast.
Funeral loans are a way to pay in installments but are very hard to get as you do not have collateral to put up since they cannot repossess a casket or flowers. If they do give the loans the rates are also usually high and unless you have stellar credit you will need to put up collateral on the loan.
Crowdfunding Website- This is a newer method of paying for funerals that is a good option if you are strapped for funds.
You can create something like a Kickstarter and ask for donations from others. This is a great way to also notify people about the deceased and share the costs with those that have loved and cared for them as well.
Pros and cons for choosing the right plan
With all of these different options, some will be better than others for your situation. It is good to go through all options and see which one suits you and your family.
For instance, fully-insured prepaid funeral plans will give you the largest amount of protection and the opposite for personal accounts. But, it is still money that you or your family could use. Here are a few tips and things to think about that can guide you in choosing what is right for you.
- Budget- What is your budget now? Will you change jobs, states? Do you smoke or drink heavily? Do you have preexisting conditions? You have to ask yourself and be honest as some plans will be better and some won’t even cover you if.
- Paid in Full- If you choose to do installments or you can pay for a prepaid funeral plan in full, most of the time you are set. This is, of course, the premium is paid, then you can receive all the benefits. You will have to have most of the money upfront and it can be pricey which is hard.
- Installments Plan- This way you can pay over a lifetime but this may not cover everything and you need to read the fine print about when the plan is fully in effect.
- Inflation- Some plans will have interest that accrues and some will not if you think the amount you put in is sufficient then do not worry about it.
- Transferable – This is not just for the people that it may cover. Some plans only will give money to certain people in certain situations while others are more open. You should also know if you can transfer them to other funeral homes and states.
- Access to the money- How quickly do you need access to the money. If you get it right away it might be less, is that ok?
Here are a few tips on how to save money on the funeral so you do not have to pay for it all.
- Shop Around- Shopping around may take some time and effort but will pay off in the end. Also asking others about where they got their plans is a good idea.
- Go Green- Having an Eco-Funeral is not only better for the environment but can also be cheaper.
- Have a Will or you wish known-Having a Will, can take away the decisions that the family has to make and can save time, money and stress.
- Know your rights as a consumer– The Federal Trade Commission (FTC) has something called the Funeral Rule. It was created to help protect consumers from being overcharged for items that they don’t want. Got to the FTC website to learn more.
- Rent the casket/Cremation- These are two options that are going more popular these days, it saves on resources and also is cheaper. Talk to your funeral home for these options. (read more about it here in another article I wrote).
- Do It Yourself (DIY)- Many people don’t think of these things but you can do things on your own to save. You can do small things from having the service at your home to making the actual headstone or even the casket.
- Spread the costs- If you have family, don’t burden yourself with all the costs, as the others put in what they can afford. Sit down and set up a plan with your family. A nice idea is to have a shared google doc.
- Embassy/Consulate help- If they died overseas, talk to the local Embassy/Consulate for help.
- Union- Were they part of a union or other group of professionals? Most of these have benefits they will pay out upon a death.
- Veteran – Veterans benefits can pay for most of if not all costs of a funeral. Each branch also has different organizations that will help you. Read here
- Social security- Social security will give a one-time benefit payment of $255.00.
- Government- There are many different programs from federal and local governments depending on your situation asking the local coroner’s office and they can assist you with a list.
- Churches/Religious Organizations- These places will help you out if you were part of their congregation or of the same faith, don’t be afraid to ask.
- Accident compensation or Victim Compensation- If the death was caused by an accident or they were a victim of a crime there is help that they can apply for. If they were a victim it would be from the state the crime happened in.
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