Preparing for Funeral Expenses

When a loved one passes away, family and friends have more than enough on their minds without the burden of figuring out how to pay for funeral expenses. The average funeral today costs $6,000, according to the Federal Trade Commission, and can easily amount to as much as $10,000 or more depending on optional services chosen, such as use of a hearse or limousine, burial container, cremation and interment. Fortunately, with some preparing, there are options available to help cover these funeral expenses. Please keep in mind that there are individuals out there that will take advantage of someone who is facing this sensitive issue and will prey on the emotionally vulnerable. Ease your loved ones’ burden by preparing. Here are some tips from Right at Home on what to look for to avoid being taken advantage of.

Life insurance
Also sometimes called funeral insurance or final expense insurance, life insurance allows an individual to bestow a designated amount of money upon a beneficiary when he or she passes away. This is paid for with a regular premium, the cost of which depends on the amount the beneficiary will receive. This lump sum is available to the beneficiary in full no matter what amount the insured has paid at the time of death. The policy can be cancelled at any time, but the premiums collected at that time are not reimbursed. There are two kinds of life insurance: term life covers the person only until he or she reaches a designated age; whole life covers the insured for his or her whole life. Many companies will offer life insurance as part of their benefits options.

The beneficiary of a life insurance fund can use the money for anything. If you plan to use a life insurance policy to cover funeral expenses, be clear with the beneficiary about these plans and be sure your beneficiary is someone you can trust to execute these plans.

Pre-need insurance
Pre-need insurance is purchased through a funeral director licensed to sell insurance, rather than through an insurance company. With pre-need insurance, the funeral is planned beforehand, and then the person pays for the funeral expenses. This can be done in one lump sum or in payments over time. When that person passes away, the funeral director is responsible for filing the claim, saving family and friends from the hassle of the paperwork for the funeral expenses.

This option allows you to prepare your funeral expenses yourself, both reducing stress for your loved ones at a difficult time and ensuring that you are put to rest the way you want. Be sure to get a price guarantee on the services you choose, or if service prices go up between when you choose your services and when you pass away, your loved ones will have to pay the difference of the funeral expenses.

Pre-need trust
Like pre-need insurance, a pre-need trust allows an individual to prepare his or her funeral beforehand and then pay for those funeral expenses. But in this case, the money is put into a trust, where it is expected to grow in value at about the rate of inflation, so the value of the trust should stay about equal with the expenses of the services, even if the cost of the services goes up. The funeral director is the beneficiary of the trust, and he is the one taking the risk should the value of the trust not grow as expected. Should it grow faster than expected, state laws determine how much of the profit the funeral director is allowed to keep on top of the funeral expenses. To protect family and friends from having to pay any difference left between the trust’s actual value at the time of death and the funeral expenses at that time, get a price guarantee and be sure the written contract places the risk with the funeral director.

Unlike insurance policies, trusts are taxable. Some states take this straight from the trust, while others will require it to be paid separately. Know before paying what responsibilities you will have regarding these taxes. Also, some trusts will allow your loved ones to change the funeral plans and get back the remaining expenses. If entering into a trust that allows this, be clear with your loved ones about your plans.

Payable on Death account
Most banks offer Payable on Death accounts, which allow a person to name a beneficiary to receive the money from a designated account when the owner passes away. Recipients of Payable on Death accounts can use the funds for whatever they choose, so if your plan is to use this money to cover funeral expenses, be clear about your plans with the beneficiary, and choose someone you trust to adhere to your wishes. Since a funeral director is not involved, you cannot get a price guarantee, so plan on prices going up. Any funds leftover belong to your beneficiary.

No matter how you choose to cover your end-of-life expenses, you should take precautions to ensure that you and your loved ones are protected from fraud:

• Familiarize yourself with your state’s laws regarding end-of-life insurance and funeral expenses
• Always verify the license of an individual selling insurance to you
• Don’t purchase anything while emotionally vulnerable, such as when preparing the service of another recently deceased loved one
• Get all agreements in writing
• Review your plans with a lawyer before committing to any agreement
• Know if there are any fees associated with the contract, such as for cancellation or relocation
• Know if your contract is revocable (your money will be reimbursed if you cancel or change your plans) or irrevocable (the insurance company or funeral home gets to keep your money even if you do not use the services in the plan)
• If working with a funeral home, make sure your arrangements are transferable in case another general home ends up performing the services—such as if you are out of town when you pass away.
• Make sure your loved ones are aware of any arrangements you make and be specific

Though it can be difficult, if you believe your loved one is nearing the end of his life, it is important to talk with him about his plans and wishes regarding his end-of-life plans. And don’t forget, Right at Home is here to help with your care needs. With our hospice care support services, we are dedicated to keeping your loved one comfortable in his or her home.