Life insurance may cover funeral expenses using the lump payment that is distributed after death. For example, you could set aside 10% of the settlement to cover burial expenses. The beneficiary could use this money to pay the associated costs after that. The beneficiary often decides what to do with the life insurance payout. They are not required to use it for the memorial service.
Make sure you communicate with your beneficiary so they know your intentions if you have a specific funeral plan in mind. They can then use the life insurance payout whatever you'd like if you do it this way.
Some insurers provide funeral life insurance add-ons. A specific sum of money is set aside by life insurance with funeral coverage to cover the cost of the funeral. As a result, you may be guaranteed that the money will pay the funeral expenses.
Paying for Funeral Costs
The two primary life insurance policies may cover funeral costs:
1. Term life coverage
Term life insurance offers protection for a predetermined period. Your loved ones would get paid if you passed away during that time. This might be used to pay for funeral expenses.
2. Whole life coverage
This type of cover covers your entire life. Due to the greater and guaranteed payout, the premiums are typically more expensive than with term insurance. As long as you abide by your insurer's rules, you may do this. More money will be available to pay for the funeral if the payment is higher.
Funeral Expenses not Covered by Life Insurance
There are several methods for doing this. Setting aside money each month for the funeral is the easiest option. Keep in mind that your bank accounts will be frozen after your death. The money will be available to your family once your will is carried out. This may occur after the actual funeral date. In order for them to access the money, you need to make arrangements with a loved one. The most straightforward solution is to open a joint bank account so they can use the money you saved.
Keep in mind that funeral prices can increase. Therefore, the amount you have saved now could not be sufficient in 10, 20, or 30 years. Another choice is to ask your family to help with the funeral expenses.
If your loved ones are self-sufficient financially, this is a possibility. Assuming not, you might be able to pay them back via your will, if you have one. Another option is to purchase a pre-paid funeral plan. In essence, you are making a funeral purchase in advance. You can pay a one-time upfront cost or a monthly fee.
Funeral expenses typically increase with time, but with a pre-paid plan, you'll lock in today's pricing. Long-term financial savings might result from this. Your family may be eligible to apply for a Funeral Expenses Payment if they are receiving certain benefits. This is a lump sum that can be used to pay for a number of funeral-related expenses.
If you passed away on or after April 8, 2020, you would receive up to £1,000 at this time (HMRC). The options provided by the state are the last. Your local government offers a public health funeral for those without relatives or savings. This will be a simple cremation ceremony.
What distinguishes funeral coverage from life insurance?
Both life insurance and burial coverage provide a lump sum payment upon death. The distinction relates to the potential uses of the reward. Your loved ones can use the money from your life insurance policy as they desire (including a funeral). When purchasing funeral insurance, the proceeds must be used for a burial or cremation.
Having coverage decreases the cost in any scenario. Your premiums may be greater since life insurance often pays out more than funeral insurance. You are further protected because they are also subject to Financial Conduct Authority (FCA) regulation.
Purchasing funeral insurance straight from funeral homes is common. The FCA does not regulate this kind of insurance. This implies that it might be more difficult to settle a disagreement. Funeral insurance can be a better choice if you've paid off your mortgage and no one depends on you financially.
Due to this, your loved ones won't have to worry about making funeral or cremation arrangements. Life insurance may be more advantageous if you still owe a lot of money or if you have dependents on your income. The recipient was free to decide how to use the funds. If they are in good financial standing, they might utilise the money to cover a more expensive funeral. However, they might decide how to divide the money if they needed it for other purposes.
Do I have to pay for the funeral?
You are not required to pay for your own funeral. But if you can afford it, it's worth considering. Losing a loved one is an extremely difficult moment. Your loved ones will be relieved to know that there is money available to cover the funeral expenses. For example, it can imply that they avoid taking on debt to pay for it.
There are alternative ways to pay for the funeral if you are unable to. As mentioned above, your local government could also contribute to the cost of funerals.
Whatever your goals, it's worth having this unpleasant conversation with your loved ones. They'll know exactly what to do when the time comes if you let them know your funeral preferences.