You probably don’t want to think about it, but at some point you are going to die and someone's going to have to pay for the funeral. With the median cost of a traditional funeral running $7,640, according to the most recent price data from the National Funeral Directors Association, you should plan for it like any other large, looming expense.
You may be 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 costs out of pocket. Here are some alternatives 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 account, sometimes called a Totten trust, 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. 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.