Can My Family Use Life Insurance Proceeds to Pay for My Funeral?

Your family and/or beneficiaries can, in most cases, use life insurance money to pay for your funeral. The beneficiary of a life insurance policy can generally use the funds for any purpose, including to cover the cost of a funeral, burial or cremation.

However, it’s important to note that the process of receiving benefits may take some time. Following the death of the insured person, the beneficiary must file a claim with the insurance company, complete with a certified copy of the death certificate. The insurance company will then review the claim before releasing the funds. Depending on the company and specific circumstances, this process can take a few weeks to several months. So while you certainly can use life insurance money for funeral expenses, it may not be immediately available when the costs are incurred.

A more timely method of using life insurance money for funeral expenses involves assigning the benefit, or a portion of the benefit, directly to a funeral home as payment. For this to be done, your policy must be assignable — review your policy in detail to find out. Further, in some cases a funeral home will partner with an advance funding (or assignment) company, which can remit life insurance funds within 24-48 hours after verifying the policy is in good standing. The company will charge a fee for this service, but it can be a useful option that your funeral home(s) of choice will likely be able to help you with. 

There’s also the option to purchase burial or “final expense” insurance, typically a whole life insurance policy, that pays out a death benefit ranging from $2,000 to $50,000 specifically for funeral or final expenses. Or, you can purchase a preneed funeral plan, another scenario in which a funeral service provider or cemetery is the beneficiary of funds to cover funeral and/or burial costs. However, there are risks associated with preneed plans — such as lack of legal protection for funds or even fraud — and drawbacks to final expense insurance, which can be quite expensive. Before entering into a contract for either of these options, it’s important to read the terms very carefully and clarify any questions before signing (good practice for any contract).

Sources

“Pre-Planning & Pre-Paying”. Funeral Consumers Alliance. https://funerals.org/get-help/pre-planning-advance-directives/ 

“How Does Life Insurance Work?” Investopedia. https://www.investopedia.com/articles/personal-finance/121914/life-insurance-policies-how-payouts-work.asp 

“The Truth About Life Insurance and Funeral Expenses”. Funeral Basics. https://www.funeralbasics.org/truth-life-insurance-funeral-expenses/ 

“How Whole Life Insurance Works” Investopedia. https://www.investopedia.com/terms/w/wholelife.asp 

“Do You Need Burial Insurance?” Forbes. https://www.forbes.com/advisor/life-insurance/burial-insurance/