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How to Pay for a Funeral with Life Insurance

Paying for a funeral can be incredibly expensive, even if it's a funeral that's expected and has been planned for in advance. Knowing what your options are when it comes time to fund the funeral can help ease your financial burden, especially if there's life insurance involved. If you're the beneficiary of a life insurance policy, here's what you need to know about how to use it (or not use it) when paying for a funeral.

How to pay a funeral home with life insurance proceeds

If you're the beneficiary of a life insurance policy, you are able to fill out what's known as "an assignment form". This form will essentially make it so that proceeds from the life insurance policy go directly to the funeral home, which they will use to settle the cost of the funeral.

Once the cost of the funeral is covered, all remaining proceeds are then returned to you (the beneficiary). Most often, the funeral home will have the documents needed in order to facilitate this but it's always important to double check with your funeral home first. If you're at all concerned, you can also check with the company who is in charge of the policy.

Here's a step by step guide:

  1. Contact your funeral home of choice and ask what their policies are and ask if they allow assignment of life insurance to the funeral home. If they say yes and you're working with them to handle the services of the deceased, make an appointment to go in and visit them.
  2. If you’re unsure about anything, check with the life insurance policy company to answer any questions you may have about your policy.
  3. Visit the funeral home and complete the assignment forms -- these forms will be used to allow the funeral home to cover funeral expenses straight from the life insurance policy.
  4. Once the funeral expenses are paid out by the policy, the rest of the funds are returned to you, the beneficiary.

As always, it's a good idea to check with a financial expert if you have any concerns or questions.

Does the beneficiary of a life insurance policy have to pay for the deceased funeral cost?

First, let's envision a scenario in which you're the beneficiary of a life insurance policy but you don't want to be responsible for the funeral expenses. Perhaps the funeral expenses are already being covered by another party or you simply do not want to cover the funeral expenses for personal reasons. Do you have to cover the funeral costs as the beneficiary of the life insurance policy?

The answer is no, you are not required to cover or pay for funeral expenses as the beneficiary of a life insurance policy. The proceeds you receive from the life insurance policy are not considered to be part of the deceased's estate and instead go directly to the stated beneficiary.

If there isn't a named beneficiary on the policy, the estate will then receive all proceeds from the life insurance policy. In this scenario, these funds could then be used to pay for funeral expenses.

Does life insurance have to pay debt?

Life insurance does not have to be used to pay debt unless it belongs to the estate (as in, no beneficiary was listed on the policy). If you're the beneficiary of a life insurance policy, you do not need to use the funds to cover the deceased's debt unless two of the following scenarios are present:

  1. You and the deceased have shared debt.
  2. You have your own debt to pay.

Technically, you're able to use life insurance proceeds as you wish, but if you have outstanding debt and creditors are trying to collect, your life insurance proceeds are considered fair game. Some states do have exemptions regarding this, so you'll want to make sure to check with a financial expert if you fall into either of these two categories.

How to reduce funeral costs

While you may be the beneficiary of a life insurance policy, that doesn't necessarily mean that you want to (or have to) spend all of your proceeds on covering funeral expenses. There are plenty of ways to reduce costs when it comes to funerals, especially if you know where to look. Here are some ways you can save on funeral expenses and lessen any financial burden:

  1. Buy online. Buying funeral products online can easily save you thousands of dollars. The best part is, the funeral home is required (by law!) to use whatever product you purchase, even if it's not from them.
  2. Only buy what you need. If you've never planned a funeral before or had to deal with funeral homes, you may feel pressured when speaking with them to purchase packages or services you're not in need of. Go in there knowing what you want and if you aren't sure, ask them to explain all of the services that will be billed separately. When you're ready, get an itemized list and pick only the services you know you need.
  3. Hold the services yourself. Organizing the services yourself (such as a memorial service at a church, for example), can help you avoid the fees charged by funeral homes to host the service. Read this guide on how to plan a memorial service if this is your first time.
  4. Opt for direct cremation or direct burial. Direct cremation and direct burial are the cheapest methods of disposition as they don't have viewings included. The body is cremated or buried almost immediately, which lets you save on funeral fees. Here's more information on direct cremation and direct burial.
  5. Crowdfund to cover funeral expenses. Reaching out to friends, family, and your community during your time of need can also help you cover funeral expenses. Many of your friends and family will be looking for ways to help support you and your family during such a difficult time and would be happy to help contribute to a memorial fundraiser. Set up a memorial fundraiser today to start raising money towards funeral costs.
  6. Apply for the Social Security Death Benefit. Social Security provides a one time death benefit to a surviving spouse or other qualified individual. You can apply for this benefit on the phone by calling 1-800-772-1213. Learn more at Social Security's website.
  7. Apply for VA Benefits. Veterans Affairs will help cover the cost of burial expenses and other related expenses, with the amount changing depending on the service status of the deceased and whether or not the deceased passed away in active service. You can find out more on the VA's website.
  8. Check with your county, city, and state for financial assistance. Many counties offer financial assistance to those who aren't able to afford funeral expenses or to other qualified individuals. Read this guide to find out if your state provides any level of assistance.

Ready to start a fundraiser? Get started on Ever Loved. Funeral fundraisers on Ever Loved have been used to help thousands of families cover the full cost of their funeral by the generosity and support of their communities.

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Last updated November 11, 2021
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