Sam Kaplan for AARP
En español | You don’t want to think about it, but at some point you are going to A) die and B) pay for the funeral. With the median cost of a traditional funeral running $8,500, you should plan for it like any other large, looming expense. You’re thinking, I’ll just set aside money in my will. That works, but it’s not the best way to go. Your survivors won’t be able to get that money until your estate wends its way through probate, which takes from a few months to a year. Since most funeral homes want full payment upfront, your survivors will have to front the funeral costs out of pocket. Here are some better ideas for covering that final bill.
Many life insurance policies will pay a lump sum when you die to a beneficiary of your choice. It will pay for your funeral or any other general financial needs of your survivors. The payment is made soon after you die and doesn’t have to go through probate. There’s also burial insurance, which is a policy intended to pay death-related costs, and pre-need insurance, a policy intended to cover a predetermined amount for a funeral. The Funeral Consumers Alliance (FCA), a death-care industry watchdog group, advises against buying pre-need and burial insurance, because you’ll often pay as much or more in premiums than the policy will pay out.
Payable-on-Death (POD) Account
This is a type of bank account that allows you to put aside funds for your funeral and name someone who can get access to the money when you die. They present a death certificate to the bank and get the money — on the spot. It doesn’t go through probate. A POD is not a joint account; the person you name beneficiary cannot touch the money until you’re dead, but you can withdraw or add to the account at any time. POD accounts also are called Totten Trusts.
You can put money aside in a regular savings account, but it will have to go through probate once you die. Again, this delays the payout. You can get the money to survivors faster if you set up a joint account with the person who will be handling your funeral and give them rights of survivorship. When you die, they become the sole owner of the account and can withdraw money to pay for your funeral. The downside is that they have access to your money while you’re alive, too. This could be a problem if your survivor turns out to be less than trustworthy.
If you were in the military, you can be buried in a national cemetery, free. There's no charge for the gravesite, marker, vault or internment. The Veterans Administration will pay a burial allowance to your survivors to cover other funeral expenses. And if you aren’t buried in a national cemetery, the VA will pay a sum toward a burial plot elsewhere.
Other Government Agencies
Social Security pays a small death benefit to the surviving spouse, and some states may pay small amounts toward funerals for people who are on disability or Medicaid, or are indigent. Some states have victim compensation funds to help pay for funeral expenses for DUI or murder victims.
You can get a loan to pay for a funeral from banks, credit unions and specialized lenders. But these are personal loans, which means they’re unsecured, hard to get and expensive. Interest rates range from 16 percent to 35 percent on funeral loans. That’s like paying for a funeral on a credit card — at higher rates. The FCA recommends that you do not go into debt for a funeral. Buy only what you can afford with cash on hand or benefits to come.
If your budget is tight, look at cheaper alternatives like direct cremations, at-home funerals or green burials. Another option: donating your body to a medical school. You’ll help train future doctors and save your family a ton of money. If you want to go the cadaver route, make arrangements in advance because most institutions require preenrollment. Once the facility is done in a few years, they’ll cremate the body for free and return the ashes to your family.
Prepay at Funeral Home
Funeral homes sell prepaid plans. Don’t buy one, says the FCA. “You can lose a lot of money if you change your mind before you die, or you end up dying in another state from where you paid for the funeral,” says Joshua Slocum, FCA executive director. The only time that prepaying is a good idea is if you are facing a Medicaid spend down before going into a nursing home. Medicaid can’t count money spent on a prepaid funeral, Slocum says.