What is the best way to pay for final expenses?

What are final expenses?

The answer can be different from one person to the next. For some, final expenses are just the costs of burial and taking care of a few small debts. For others, final expenses can include basic burial cost and flying relatives to the funeral and paying off large debts. Final expenses rarely include leaving enough money for a surviving spouse. That would fall under another part of planning. Regardless of which method you choose, believe me, planning ahead will relieve your family from very significant t stress. We have had some clients who wanted to make sure that enough money was available to not only pay for a few debts but also to fly in relatives, bring in a band, photographer…. or some other fancy addition.

Planning ahead

Preplanning is very simple and should be followed by everyone. It does not necessarily involve any payments and will head off possible arguments between family members as to what your wishes were for a funeral. With preplanning, you meet with a funeral director and make all arrangements as to the type of funeral you desire. Of course, this should be reviewed occasionally as your needs change. Preplanning does not require that you pay for anything so no money is exchanged between you and the funeral home.

Lock in the rate

Once you know what type funeral you want, it is important to know in advance what the final cost will be. Some funeral homes, will allow you lock in a price. Note that the price is usually good for only a certain amount time and can be adjusted for inflation. So, if you are in your early 40s and are locking in a price, unless you pay for the whole thing ahead of time, your final quote may rise with time.

Paying for the funeral costs ahead of time.

One method some people use is a pre-pay method. In other words, an individual pays the funeral home in advance for all costs of the funeral that was preplanned. The rate is guaranteed not to change regardless of when the funeral takes place. Although this method does take care of all costs and brings some peace of mind, we feel that a prepay plan may not necessarily be the best choice. Your prepaid funeral is only as good as the funeral home you have selected. What happens if they go under (no pun intended)? Can you recover your pre-payment? Does the funeral home offer a backup plan? These are important questions.

Using a final expense life insurance

Also called a burial policy, final expense life insurance can be a relatively inexpensive way to take care of final expenses. Instead of having to come up with the full amount of the funeral cost upfront, with a final expense life insurance, you just pay a monthly premium to an insurance company and, when you pass away, the insurance company will pay your beneficiary (usually tax free) a death benefit that you preselected when you applied for the plan. One big advantage of this plan is that you are not locked in to one particular funeral home. You can also decide in advance if you want the entire face amount of the burial life insurance policy to go towards your funeral. For example if you have a $10,000 final expense policy, the final cost for your funeral may only be $6,000. Your beneficiary can use the remaining money ($4,000) for other things. Also, if you move to another state, your final expense life insurance goes with you. This gives you a lot of flexibility.

One drawback of the final expense life insurance plan, is that not everyone gets approved or not everyone gets affordable rates. In that case, the prepay plan may work best or next option may even be better.

Putting money away in an savings plan

This last method has the same advantage as the final expense life insurance. It gives you a lot of flexibility. With this method, the biggest danger is if you die soon after you start the savings plan (relative to the amount you save in the early years). If you die “too early” your funeral savings plan may be severely underfunded. If time is on your side, one big advantage of this plan over all other plans is that if you live many years after you start the plan; you will most likely end up with a much larger amount of savings than if you used the pre-pay method or the final expense life insurance.

As we anything, risk is involved. Choose wisely and ask a lot of questions. Some people have even used a combination of all three method mentioned above. Whatever you choose, please read all documents you sign very carefully and review your plan at least once a year. Be well.