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Does Life Insurance Cover Funeral Costs?

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When a loved one passes away, there are many sudden financial responsibilities left to handle on their behalf, including paying for the funeral if no arrangements were made in advance. 

While nearly 60% of Americans have life insurance, the reimbursement you may receive as a surviving family member isn’t always an option for funeral expenses. Even if your loved one had a policy in place, you may not receive the reimbursement in time, or it may not cover the full amount—leaving you paying out-of-pocket for final arrangements.

To prevent this from happening, we explain why a prepaid funeral policy may be the better choice when it comes to covering costs.

What Is Life Insurance?

A life insurance policy is a contract with an insurance company in which you make installments, so your loved one receives payments once you pass away. This payout, known as a death benefit, is designed to replace lost income and help to pay off debts and taxes—not necessarily a funeral.

The type of life insurance is chosen based on the needs and wishes of the policyholder. Generally speaking, life insurance is divided into two types, including:

  • Term: This policy is designed to provide financial protection for a specific period of time. While typically less expense than a permanent life insurance policy, term lasts only as long as you need it to provide for beneficiaries. When the term is up, however, the policy expires.
  • Permanent: This policy is designed to provide lifetime coverage. Because of the lifetime coverage period, a permanent life insurance policy usually has higher premium payments than term life insurance.

It’s not uncommon for families to expect to pay for a funeral with life insurance benefits, but the truth is, there can be many unexpected complications.

With life insurance, your family is required to pay the funeral home upfront at the time of the funeral. However, it can take weeks or even months before the life insurance company pays out the death claim. Delays in filing a claim, or getting the right documents together, can stretch the payment date out. This leads to frustration and financial strain on loved ones during an already difficult time.

It’s important to note that some life insurance policies offer burial insurance (called a final expense plan). This additional purchase offers funds to help your beneficiary pay for funeral expenses. The advantage of this plan is that, unlike most life insurance policies, it doesn’t require a medical exam. As a result, many people can qualify, driving up costs.

What Is a Prepaid Funeral Policy?

Prepaid funeral policies are specifically designed to pay for the funeral. By preplanning final arrangements ahead of time, the services selected are locked in at today’s rates to save you and your family from rising funeral costs.

Preplanning offers flexible payment plans. Instead of having to pay one large lump sum upfront, you’re able to space out payments to fit your budget, while protecting surviving family members from having to take on this financial obligation themselves.

Under Ohio law, all prearranged plans are 100% transferable at any time, so the cost you agreed upon during the initial prearrangement is final. And in most cases, if you pass unexpectedly before you pay off your balance, the insurance covers the remaining payments.

Why Else Should I Consider a Prepaid Funeral Policy?

Beyond the practical reasons, preplanning provides peace of mind to you and your family. It lessens the burden on loved one’s by having a plan in place, while allowing you to put your preferences in writing. It also gives you time to think about how you want others to remember you.

With a prepaid funeral policy, you work with an advisor to document your final wishes. Together, the two of you can design a personalized tribute that reflects your preferred final arrangements, including:

  • Your choice between burial or cremation.
  • Your choice of service (ex: gathering, visitation, funeral and/or memorial service).
  • What items you’d like (ex: casket, headstone, cremation urn).
  • Personal touches (ex: video tribute or photo display).

This ensures that your final wishes are carried out and relieves your family from handing arrangements on their own, so they can focus on spending time together during this difficult time.  

>>>Related Resource: Find the answers to five common questions about preplanning.

Save Your Family From Emotional and Financial Burden—Preplan

Interested in learning more about the emotional and financial benefits of preplanning? Download the Seniors’ Guide to Funeral Arrangements for more information on how preplanning can save you and your family time, money and worry.

Download our preplanning guide

Editor’s Note: This post was originally published in 2016, and has been updated to be more current and comprehensive. 


Jim Busch
Jim Busch
Owner and president of our firm. Fourth generation funeral director and certified crematory operator, Jim is guided by his principles in faith, family and friends. He loves to hear feedback from our families. Proudly serving Busch families since 1986.

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