How to Pay for Your Funeral

The cost of a funeral can easily run into the thousands of dollars, forcing unprepared families to borrow or scrape together money to pay for it. Making savvy decisions is tough after any financial hit, but especially while coping with grief and loss. By planning now, you can prevent your loved ones from suffering that kind of financial pain after you’re gone.

Here are some alternatives.

1. Buy life insurance

The types of life insurance you consider and the amount you buy will depend on your family’s needs. If you want life insurance to pay for your funeral no matter when you die, you’ll need a permanent policy, such as whole life. Some life insurers advertise small whole-life policies as funeral, burial or “final expense” insurance to seniors. The beneficiary can use the payout for anything, though, so the term burial insurance is more of a marketing term than a true product name.

The national median cost of a funeral is about $7,200, according to the National Funeral Directors Association. You can check prices at funeral homes in your area to confirm how much insurance coverage you’d need to pay for the entire funeral cost.

Term life insurance is a good choice if you think you can eventually set aside enough money for a funeral and want life insurance coverage only if you die before then. Term life covers you for a certain period, such as 10, 20 or 30 years. The policy pays your beneficiary, such as a spouse, if you die within the term. Term life is cheap, and it works well for most people who want to protect their families financially while the kids are growing up. The idea is to buy enough so your family would have money to pay debts, living expenses, college tuition for the kids and your funeral costs if you passed away prematurely.

» COMPARE: Life insurance quotes

2. Buy a ‘preneed’ life insurance policy from a funeral director

A preneed policy is whole life insurance you typically buy through a funeral home. The amount of coverage corresponds with the cost of the funeral arrangements you choose. In some cases, the funeral home will lock in the prices when you choose the funeral details and buy a preneed policy.

Consumer protection laws vary by state. In some states, the life insurance payout can go directly to the funeral home. In others, you have to name someone you trust, such as an adult child, as beneficiary.

3. Prepay for a funeral

You can prepay for a funeral by holding money in a trust established by a funeral home. You work with the funeral home to select all the details for your send-off. Be careful with this approach, though. The National Funeral Directors Association says an ethical funeral home will provide a written contract that spells out all the details, including:

• Geographical boundaries of the funeral home’s service area and when a prepaid contract can be transferred to a funeral home outside the area.
• Where and how the money you pay will be deposited and who will pay taxes on any income or interest generated by the money that is invested.
• Whether the prices of goods and services are guaranteed and who is responsible for additional costs due at the funeral if the prices are not guaranteed.
• The circumstances that let you cancel a prepaid contract and how much of the money will be refunded.

4. Save cash for your funeral

The nonprofit Funeral Consumers Alliance advises against prepaying for a funeral. Instead, it suggests setting up a bank account that’s “payable on death” to a loved one you trust to carry out the funeral arrangements. You can start saving money now, and once you have enough to cover the cost of a funeral, let it earn interest to cover any cost increases due to inflation. You can always add money if interest rates remain low.

That doesn’t mean you can’t plan the details for your funeral. In fact, you’ll save your loved ones a lot of tough decisions and potential conflict if you choose a funeral home and the arrangements ahead of time. Just make sure you write down the details and share them with family members.

Meanwhile, if your death is likely many years away but you want life insurance to provide a financial cushion for your family in case you pass away prematurely, think about more than the cost of a funeral. Consider all your family’s expenses and how much money they’d need to get by if you were no longer around. It’s important to shop around and compare prices.

Barbara Marquand is a staff writer at NerdWallet, a personal finance website. Email: bmarquand@nerdwallet.com. Twitter: @barbaramarquand.

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