How To Pay for a Funeral on an Installment Plan

Three years ago, Larry Refsland, who works at a marketing company in Northern Minnesota, experienced the deaths of both his mother and mother-in-law in the same year. Since their passing, Larry has reflected a lot on the differences between the two funeral experiences. “After my mother-in-law's funeral, we owed $9,000," he says. “After my mother's, we owed nothing."

While both women had lived in the same rent-controlled housing and were on the same fixed monthly income, Larry's mother made monthly funeral payments on prearranged services. Larry's mother-in-law, on the other hand, had no such plans, and her family had to cover the bill for her funeral expenses on the spot.

In this article, you will learn:

• The different ways to pay for your own funeral, cemetery or cremation expenses in advance
• How prepaid funeral plans work
• How much prepaid funeral plans cost
• What prepaid funeral plans cover
• What happens if you miss prepaid funeral payments
• If prepaid funeral plan payments affect your ability to qualify for Medicaid

According to the National Funeral Directors Association, the median funeral cost in the United States in 2019 ranged from $6,645 for a cremation with a viewing and memorial service to $9,135 for a funeral with a viewing, service and vault. When cemetery costs are factored in, the total median cost of a funeral can exceed $10,000. Even simple cremations with no service can exceed the savings a family has on hand. (Read our full coverage on funeral, cemetery and cremation costs here.)

Especially when coupled with the grief of losing a loved one, it's important for each one of us to document and fund funeral plans in advance to relieve the financial and emotional burden as much as possible.

The bottom line: When you pass away, your family is responsible for your funeral, cremation and cemetery costs. Besides paying with cash on hand, there are just a few options available to pay for these expenses: prepaid funeral plans, life insurance, veterans benefits, or a few last resort options at the time of need.

Because funeral homes, cremation providers and cemeteries don't typically offer payment plans at the time of need, most offer monthly payment plans in advance in the form of prepaid funeral and cemetery arrangements (also called pre-need funeral plans). Prepaid funeral and cemetery plans take the financial burden and emotional guesswork out of a difficult time in life. Plus:

• You get a price guarantee that protects against rising costs and inflation. Prices for products and services can be locked in at today's rates. When needed at the time of death, your loved ones won't pay extra.
• You remove a financial and emotional burden from your loved ones. Families tell us that funeral planning can be incredibly overwhelming when grieving, and that having a plan to follow makes a huge difference.
• Affordable monthly payment plans make it easy to budget for final expenses that are incurred by all of us. Payment amounts differ based on terms, funeral wishes and age.
• Peace of mind. When your wishes are in writing, and your product and service selections have already been made, you give your loved ones the gift of saying goodbye without the extra stress of trying to guess what you would have wanted. There are no rushed decisions and you can learn about your options in a relaxed environment.
• Relocation flexibility.  With Dignity Memorial providers, prepaid funeral and cemetery plans can be transferred to other Dignity Memorial funeral homes or cemeteries if you move more than 75 miles away, although some restrictions apply.

Typical objections to prepaid funeral plans:

• Funeral homes, cremation providers and even cemeteries can go out of business. State governments will protect families in these unfortunate situations. However, when selecting a Dignity Memorial provider, your money is kept safe by a third party (an insurance company or a trustee, not the funeral home) until the time of your funeral. Then it is given to the funeral provider at the time of death to cover your funeral expenses.
• There isn't flexibility when relocating. Although this may be true for most funeral providers, when buying from a Dignity Memorial provider, prepaid funeral and cemetery plans are easily transferred between one of our 1,900+ locations in 47 U.S. states, Canada and Puerto Rico when you move more than 75 miles away.
• You can earn more money in a different investment. While the stock market or other investments can potentially offer better returns, it's too risky for most people who count on these funds to be there when they need them. Plus, access to the deceased's bank accounts and investment funds isn't a sure bet immediately upon death. With a prepaid funeral plan, the money is secured by an insurance plan or trust and is made available immediately upon death.

Paying for funeral expenses with a life insurance policy

If you carry life insurance, it may cover some or all of your funeral and the burial costs. The downside is that life insurance can take a month or longer to pay out, while you will be billed before the funeral takes place. It also does nothing to make your final wishes known to your loved ones, and leaves them with the difficulty of selecting a provider and making detailed arrangements during a time of grief.

Also, families often misunderstand their life insurance policies, and can be disappointed when they have expired or don't provide the coverage they expected for final expenses.

Term life insurance is a temporary insurance policy with an expiration date, usually between five and 30 years. If you die during the term of the insurance, your beneficiaries receive a pay out. It is most often carried by adults in the prime of life with dependent children or mortgages. Most older adults either do not qualify for term life insurance due to medical exam requirements, or the premiums are too expensive. If you believe your final expenses will be covered by a term life insurance policy, please check your policy to ensure that the premiums are current and it is not expired.

Whole life insurance is designed to cover income replacement and end-of life expenses like funeral costs and medical bills. As long as the premiums are paid, it covers you until you die. Premiums are typically higher than term life insurance, while the fixed pay-out amounts are usually lower. Health conditions can still prevent some older adults from qualifying, but instead of a medical exam it just requires medical questions to be completed during the application process.

Final expense insurance is a specific type of whole life insurance, also called burial insurance or funeral insurance, which pays a lump sum upon death and is specifically designed to cover funeral costs. It isn't intended for income replacement like other life insurance products. If you don't know what you want for your funeral, or can't bring yourself to discuss your wishes with a funeral provider, it is a good alternative to buying a prepaid funeral plan. But it doesn't lock in prices like a prepaid funeral plan does, nor does it help your family make the funeral arrangement process easier. Families sometimes find themselves with an insurance pay out that doesn't cover the complete funeral expenses.

None of the above will pay out in time to pay a funeral home bill. A family would need to pay the bill another way and wait for one of these plans to pay out and then reimburse themselves.

Paying for burial expenses with U.S. veterans benefits

For U.S. veterans in 2020, the U.S. Department of Veterans Affairs will pay a $300 burial allowance and $780 for a plot (for a nonservice-related death outside a VA hospital) or a $796 burial allowance and $796 for a plot (for a nonservice-related death at a VA hospital). However, these benefits are not automatic and they apply only when the veteran is being buried in a national cemetery. Even then, these allowances are usually not enough to cover all expenses, so veterans benefits usually need to be combined with cash or another type of coverage plan.

Read more about VA burial benefits here.

Last-resort options for paying for funeral expenses

The remaining alternatives for paying for funeral expenses are usually a last resort when death has occurred and there is no cash on hand.

A credit card. High interest rates make this not a great solution, but some families do take this route.

A bank loan. If you have good credit and are comfortable with taking on debt, you can apply for financing at a bank or credit union. This can take time when time is of the essence.

A family pool. Family members can come together and pool their money to help with funeral costs. Some families turn to crowdfunding sites like GoFundMe to make this process easier.

Frequently asked questions about the prepaid funeral cost breakdown

Understanding prepaid funeral costs doesn't have to be difficult. Here we answer a few questions.

Because prepaid funeral, cemetery or cremation plans set aside funds for specific products and services, the amount of the plan doesn't exceed the actual planned cost of the funeral. Unlike insurance plans, you stop paying your monthly payments when the plan has been fully funded. Prepaid funeral plans usually start in the low thousands and range up from there, depending on your wishes. They are usually payable over 3 to 10 years.

A prepaid funeral plan is created by you, so it covers the things you decide are important. You can plan a simple gathering or a grand event. For traditionalists, it can include embalming, a premium casket, flowers and catering, and cemetery property. Or you could elect for a simple cremation and a mausoleum niche for your ashes. When you meet with a pre-planning professional, you'll learn about all of your options. Make an appointment.

A prepaid funeral plan is similar to car insurance in that if you miss a payment, you receive a lapse warning. After 90 days of nonpayment, your plan may be cancelled. If that happens, you would still be able to use that money to fund future arrangements, but you would lose any price protection.

When you buy a prepaid funeral plan, it is generally excludable for the Medicaid spend-down process. Unlike traditional insurance, it won’t affect your ability to qualify for Medicaid. However, many states limit the amount you can put into a funeral plan to between $5,000 and $15,000. Please discuss any concerns with your pre-planning professional and your Medicaid caseworker to make sure your needs are met.

What happens if my prepaid funeral, cemetery or cremation provider goes out of business?

At Dignity Memorial, your money is kept safe by a third party (an insurance company or a trustee, not the funeral home) until the time of your funeral. Then it is given to the funeral provider to cover your funeral expenses at the time of need.

What happens if I move?

When buying from a Dignity Memorial provider, prepaid funeral and cemetery plans are easily transferred between one of our 1,900+ locations in 47 U.S. states, Canada and Puerto Rico when you move more than 75 miles away.

Planning a funeral ahead of time

We recognize that funeral arrangements and associated expenses can be overwhelming. By preparing in advance, you provide a sense of relief, peace of mind and comfort for your loved ones while ensuring your wishes are met and your budget is maintained. When you pre-plan a funeral you honor both yourself and your family.

Contact us to speak to a planning professional today.