We understand that paying for a funeral can be expensive and raising funds to cover costs can be overwhelming, especially during what is already a difficult time. There are many ways to pay for a funeral, both at the time of death and ahead of time. More and more people are planning ahead these days, and for good reason. for example, you can lock in prices by paying for services now, rather than later, when inflation is likely to cause utility rates to rise.
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“prepaid” with life insurance
People have come to us recently asking the question, “can I prepay for my funeral with my existing life insurance policy?” technically, the answer is no. you cannot prepay for your funeral with a life insurance policy that is still in force. however, there are ways to use your life insurance policy as a means of covering future funeral expenses, although there are drawbacks to this payment method that you should be aware of.
When we accept a life insurance assignment, it’s usually for a policy someone else purchased on their own. the death benefit and allowance can be used to cover funeral services. the family simply makes the funeral home the beneficiary of the policy. however, there is no actual money changing hands in this scenario, and therefore this is not actually the advance payment for the funeral.
The good news is that if you have a dividend life insurance policy, it will almost always result in a higher value than the increase in the cost of funeral services over the life of the policy. Although the price can’t be set without money changing hands, if you leave your dividends in the life insurance policy, you should cover the increased cost over time (about 5% a year). In most cases, the future value of the policy will exceed the cost of funeral services.
However, there are several potential issues to be aware of when using life insurance as a means of paying for a funeral.
- policy surplus if a $10,000 life insurance policy is worth $14-$16,000 over time, and the funeral costs less, the estate will receive a check for the surplus. However, if the decedent was on Medicaid, then the state of New Hampshire could be first in line to receive that money. Medicaid and/or a nursing home can make claims against excess insurance money.
- Unsecured Another problem with this option is that, at the time of the policyholder’s death, there could be other loans against the policy. Or, the policyholder may have defaulted on the policy, let the policy lapse, or cashed in the policy. Just because the policy was assigned to a funeral home to cover services, doesn’t mean there will be enough funds (or none at all) when it comes time to use it.
- high premiumssome life insurance policies require beneficiaries to pay them for the rest of their lives. In many cases, you will pay more in premiums than the cost of the funeral. one option we recommend is to collect the policy and pay the difference, instead of continuing to pay the insurance premiums.
- Insurance Processing Fee There are companies that can obtain life insurance funds immediately, so items can be paid for in a timely manner. in some cases, life insurance payment may take 30 days. A factoring company creates a bridge loan between the insurance payment deadline and the time the funeral home needs funds to perform the services. this service, of course, usually comes with a significant fee.
use life insurance at the time of death
If a loved one passes away and you have an existing life insurance policy, it can be used to pay for funeral services. A family member simply needs to bring the policy information when they meet with the funeral home, which will handle all the paperwork to claim the benefit on their behalf.
Sometimes family members don’t know if their deceased loved one has existing life insurance. You can contact the New Hampshire Department of Insurance by phone at (603) 271-2261 or by email at [email protected] to find out. again, there is no guarantee that there will be enough funds to cover the services, unless you know the current value of the policy.
prepayment of a funeral
Prepaying for a funeral means real money changes hands and services are paid for in full. At Phaneuf, we offer a rate guarantee to lock in prices now, to prevent increases over time. warranty fees are based on each person’s age at the time of purchase. By setting up a payment plan that fits your budget now, you can avoid sudden financial pressure on your loved ones when you die.