Does Health Insurance Cover Funeral Costs?
Health insurance typically covers the costs of medical and health-related services meant for the living, which does not include the cost of a funeral. The IRS does not even allow funeral costs to be deducted as medical expenses on your taxes, which further emphasizes the difference between health insurance for the living and expenses for those who have died.
Funeral costs can be high, but there are safeguards in place by the Federal Trade Commission to help protect the consumer. You also have several ways to ensure that you have funds to help pay for the funeral of a loved one or even your own.
Will life insurance pay for funeral costs?
Life insurance policies may have funeral cost coverage available, usually in the form of pre-need senior policies or final expense policies. The SSA says such policies were created with the intent of paying for funeral expenses.
These policies are usually set up between the policy owner and the funeral home, with proceeds from the death going to the funeral home to pay for agreed-upon services. Excess funds would go to a designated beneficiary or back to the estate of the insured. Each state has different insurance laws, so you would need to check if this option is available in your state.
Another option is using part of the proceeds of a person’s life insurance policy to pay for funeral expenses. One drawback of this is, of course, the delay that often comes with waiting for a life insurance policy to pay out those proceeds.
Life insurance companies may not pay out proceeds until they do an investigation of the death, especially if murder, suicide, or other suspicious circumstances may be involved. You would also have to be the beneficiary of the policy to be able to make the decision on how the money is going to be spent.
What other options may be available?
If life insurance proceeds are not an option, Caring.com notes several others that may be viable alternatives. You may be able to get some money to pay for part of the funeral from the Social Security Administration. The SSA has eligibility requirements your family or loved one would have to meet, but it may offer $225 to help put toward the overall funeral cost if those requirements are met.
The Department of Veterans Affairs may help with the cost if the deceased was a veteran. Additionally, you may be able to get help from your county treasurer’s office. Sometimes a county will help families pay for funerals if the families cannot or are not willing to pay for the funeral themselves.
Caring.com also points out an organization known as the Funeral Consumers Alliance that has listings of local groups that often help area residents pay for loved ones’ funerals. These nonprofit groups are typically called memorial or funeral societies and they help protect consumers when it comes to paying for and purchasing funeral services.
Can I prepay for a funeral in advance to make sure it’s covered?
Paying for a funeral in advance is another option, although the New York State Department of Health notes this option comes with several caveats. Making sure you have a valid contract or signed arrangement is a must to ensure you will be getting what you’re paying for. You also want to let at least one other person outside of the funeral home know that you’ve set up a prepaid funeral and the details of the funeral.
Make sure you keep a receipt of the funds you paid and you let others know where they can find the receipt. You should also know exactly where your money is being deposited or held until it can be accessed as needed.
If you do wish to prepay for a funeral, it’s usually done in one of two ways. You can set up a contract with the funeral home, which will serve as a trustee and hold the funds until they are needed. Another option is to set up a specific bank account with a passbook, with the money going for the benefit of the funeral home.
Paying for a funeral in advance can bring peace of mind that the family will not be held liable in the future, but you can still preplan a funeral without paying for it advance. If the goal is to ensure the funeral services and details are done exactly as someone wishes, you can certainly preplan a funeral without putting any money down.
Even though shopping for funeral services may not be a particularly pleasant option, doing so in advance can save headaches and heartache down the line. Also keep in mind that it is still shopping for services at a business, and you need to ensure the company with which you are dealing keeps your best interests in mind.