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 $7,500, 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.
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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. Be sure the person you name as beneficiary is someone you can trust to use the funds for your funeral, not a cruise to Cancun.
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, with no charge for the gravesite or marker. Space is limited, so if you’re thinking this is where you want to spend eternity, you should get a predetermination of burial eligibility now. You’ll need to pay for any funeral services like embalming, burial and picking up the body, though. The Department of Veterans Affairs will pay up to $2,000 for burial expenses if your death was service-related, and between $300 and $796 if death wasn’t service-related. And if you choose not to be buried in a national cemetery, the VA will pay a $796 plot-interment allowance to your survivors. That’s a maximum benefit of $3,600, so you’re likely to still have out-of-pocket expenses.
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 6 percent to 35 percent on funeral loans, depending on the borrower’s credit score. That’s like paying for a funeral on a credit card.
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. The FCA advises against buying one. It’s not that funeral directors are out to get you. It’s just that your situation may change between when you pay and when you die. “You can lose 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. Some prepaid plans include the cost of transporting a body to another location, and some funeral homes are part of national companies that will honor prepaid plans bought at any of their properties. But keep in mind that only about 10 percent of the nation’s funeral homes are publicly traded corporations. Most are locally owned and not part of a larger network. Be sure you understand what’s included in your plan, and what isn’t. Prepaying at funeral home is a good idea if you are facing a Medicaid spend down before going into a nursing home, though. Medicaid can’t count money spent on a prepaid funeral, Slocum says.