Using Life Insurance to Pay for Cremation: What Families Need to Know

Cremation is much less expensive than a burial, but it can still be costly. Using life insurance to pay for cremation in Los Angeles can reduce expenses, but what’s involved? This article will walk you through the process, so you know exactly what to expect.

Table of Contents

• Introduction
• What are Typical Cremation Costs?
• Why Type of Life Insurance Cover Cremation?
• How Life Insurance Works in Practice
• Covering Cremation Costs Before the Insurance Pays Out
• Important Policy Details Families Often Overlook
• Naming Beneficiaries and Communicating Your Wishes
• The Importance of Telling Your Family Your Wishes
• Alternatives If Life Insurance Isn’t Available
• Step-By-Step Checklist for Families
• Tracking the Timeline and Following Up on Claims
• Opal Cremation Assists with the Insurance Process
• FAQs
• Additional Resources

Key Takeaways

• Cremation is less expensive than burial, but expenses can still add up.
• Many people purchase life insurance policies that pay for cremation, but which policy should you choose, and how does the process work?
• This article provides valuable tips to support a seamless process.

Introduction

There’s no doubt about it- death is expensive. While cremation is the most inexpensive solution, expenses can add up, especially if families require additional death certificates, want mementos, or need extra services. Fortunately, life insurance policies can help.

But life insurance can get confusing. Families may not know which policy to invest in or how to claim funds when the time comes. Opal Cremation can guide Southern California families through the process, but here are some valuable tips to keep in mind.

What are Typical Cremation Costs?

According to U.S. Funerals Online, the average cost of direct cremation, the simplest, most affordable type of cremation that does not require a service, ranges from $ 1,045 to $2,000. However, if you read our articles, ” The Real Cost of Cremation in Los Angeles” and “The Real Cost of Cremation in Orange County”, you will learn that families often pay much more than the originally quoted price, due to necessary or hidden fees.

For example, families may pay more for necessary fees such as:

• Additional Death Certificates: $26
• Scattering Permits (necessary if ashes are divided): $12

However, many people end up paying additional fees, such as:

• Transportation fees for mileage beyond a certain distance
• Overweight fees
• Urn upgrades
• Credit card processing fees
• Removal of the body

With these fees, cremation could cost hundreds, or even thousands, of dollars more than the originally quoted price. It can get expensive, but life insurance is available.

What Type of Life Insurance Covers Cremation?

Several types of life insurance can be used to cover the cost of cremation. Any kind with a death benefit that pays out cash can help, but they each work differently as follows:

• Traditional Term Life Insurance: Covers a specific term (10, 20, 30 years) and pays a lump sum if you die during that term. The benefit can pay for anything, including cremation and other expenses. It’s a good choice for people using it for income replacement who plan to set aside a small portion for cremation.
• Whole Life and Other Permanent Insurance: Lifelong coverage with a guaranteed death benefit and cash value component, which can be used to cover final expenses, debts, and inheritances. It is recommended for people who want to ensure coverage will be there when they need it.
• Final Expense/Burial Insurance: A small permanent policy, typically ranging from $5,000 to $25,000, specifically set aside for funeral, cremation, and other end-of-life costs. It is often more expensive per dollar of coverage, but it is easier to qualify for later in life.
• Group Life Insurance (Through an Employer or Association): Coverage through a union or professional group with a modest death benefit. If you die while covered, your beneficiary can use the payout to cover expenses. However, you will lose coverage if you leave the group or job.
• Pre-Need Life Insurance (Sold Through a Funeral Home): Funeral homes often sell pre-need policies, allowing you to lock in today’s prices. It can simplify things for your family, but it reduces flexibility if you change your mind later.
• Small Riders on Existing Policies: These riders may allow you to access a small portion of the death benefit, which can help with preplanning or prepayments.

Quick Glance of Life Insurance Options

Expert Quote

“Many times, people are so emotional when they face these kinds of things that they make bad decisions. That’s why pre-planning and making decisions ahead of time is a really good move.”

Financial Advisor Dave Ramsey, from the article “What Does Dave Ramsey Say About Funeral Planning.”

How Life Insurance Works in Practice

When a death occurs, it’s up to the beneficiary to cash out a policy. To claim the money, the beneficiary simply needs to submit a claim and a certified death certificate. The insurer verifies the claim and pays the death benefit.

In some instances, the funeral home may be named the beneficiary and will be paid directly or through an assignment of benefits.

If there is no living beneficiary, the proceeds go to the insured’s estate, and an executor distributes them according to the decedent’s will. If there is no will, they are distributed by state intestacy laws, which determine inheritance based on family relationships.

Do You Have to Cash Out the Whole Policy Amount?

Not necessarily. There are several payout options. For example, you may receive:

• A Standard Lump Sum: With this approach, the full death benefit is paid as a single lump sum. Once the beneficiary has the money, they can use part of it for cremation costs and keep or invest the rest.
• Structured Payouts: These include an interest-only option, in which the insurer keeps the principal and pays the beneficiary interest. There are also fixed-amount and fixed-period options, in which the beneficiary receives a set amount over a specific period.
• Partial Assignments: This means the insurer pays the funeral home to cover the death expenses, and the remainder of the benefit goes to the beneficiary.

Covering Cremation Costs Before the Insurance Pays Out

Insurance policies typically take 30 to 60 days to pay out, while many funeral homes require payment in days or weeks. So, what can you do if you don’t have the money up front? Here are some suggestions.

• Use an Assignment of Benefits (AOB): With this strategy, the policy owner or beneficiary signs over the right to collect benefits to the funeral home, rather than collecting them themselves and then paying the funeral home. It eliminates the timing gap and makes finances easier to manage.
• Short-Term Loans: A family may apply for a short-term loan to temporarily cover the cost of burial or cremation.
• Help From the Family: The next of kin may ask the family to help cover the expenses.
• Employer Death Benefits or Union Benefits: The decedent may have union or employer benefits that families can use to cover the cost.

Los Angeles and Orange County families may also consider an Accelerated Death Benefit (ADB), which allows the policyholder to access a portion of the death benefit while they are still alive. Some policies may allow this if the person has a terminal illness or is in extremely poor health. It can help families access funds sooner so they can pay the funeral bill when the time comes.

Important Policy Details Families Often Overlook

Waiting Periods

These are often an issue with final expense and burial insurance policies. Because the policies are easy to qualify for, with no medical exam needed, insurers protect themselves by including a waiting period of two to three years. If the policyholder dies within the waiting period, the beneficiary may not receive the full claim amount. They are a concern for people who purchase insurance late in life.

Contestability Windows

This window typically runs for two weeks from the policy’s issuance date. During this time, the insurer may investigate the claim and deny it if a misrepresentation is found in the original application. For example, incomplete or inaccurate medical information could lead to a claim being denied or a reduced payout, especially if the deceased died of an undisclosed condition.

After two years, the claim becomes incontestable and must be paid by the insurer unless they can prove outright fraud.

Policy Lapses from Unpaid Premiums

Some policies can lapse if premiums are unpaid, meaning coverage ends and the insurer owes nothing upon the policy owner’s death. Typically, there’s a 30-day window before the lapse occurs, and a warning is sent. Lapses can be avoided with automatic payments and careful monitoring.

Outdated or Missing Beneficiary Designations

A beneficiary designation tells the insurer to whom the policy goes after a person dies and can override a will. In some circumstances, the beneficiary may die or become estranged, and the policy is not updated before the policyholder passes away.

If the beneficiary is estranged, they, according to general law, have the right to use their money as they wish. They aren’t required to apply it to the policyholder’s death. However, in some states, filial responsibilities require family members to cover certain expenses.

With deceased beneficiaries, the money goes to the policyholder’s estate, which may require going through probate, a lengthy legal process that could delay payment for months.

Pre-need Policy Risks

Pre-need policies are alternatives to traditional life insurance that require you to pay funeral homes in advance for cremation or burial services. The benefits include locking in today’s prices and easy planning for families. However, they could be risky if the funeral home closes, you relocate and are no longer near it, or you decide to go with another provider.

Life insurance may be a better choice as the beneficiary can use the money to pay for services, regardless of the provider.

Naming Beneficiaries and Communicating Your Wishes

Choosing the right life insurance plan is only half the battle. You must also choose a beneficiary you can trust, considering the following factors:

• Financial Responsibility: Choose someone who is not likely to use your money for other purposes.
• Availability: Funeral homes typically want to contact your beneficiary within days. Choose someone who is easy to locate and is communicative to avoid delays.
• Age: If you name a minor as your beneficiary, they won’t have access to the money until adulthood, leaving them unable to cover funeral costs. However, if you feel this is your best option, consider establishing a trust. You should also beware of naming an older beneficiary who may die before you do.
• Contingent Beneficiaries: These ‘backup’ beneficiaries can handle financial responsibilities if the primary beneficiary dies or is unavailable.

 Should I Name the Funeral Home as My Beneficiary?

Some may choose to name a funeral home as their beneficiary. This offers the following benefits:

• Ensures funeral expenses are paid for directly
• Removes the financial responsibility from grieving loved ones
• Eliminates the risk of unreliable beneficiaries misusing the funds
• Can simplify and speed up the claims process

However, there are also disadvantages to consider. For example, naming the funeral home as a beneficiary means:

• You are locked into a specific provider with no flexibility if your circumstances change
• If the policy amount exceeds the expenses, recovering the remainder can be complicated, depending on the terms of the agreement.

The Importance of Telling Your Family Your Wishes

Your insurance policy may pay for your services, but that doesn’t mean you shouldn’t discuss your wishes with your family. If you don’t tell your family what you want, it could cause arguments over how your death should be handled, which can be especially difficult when emotions are raw.

Conversations about death with family members can be challenging, but this type of communication will be worth it in the long run. Here are some things to touch on:

• Cremation vs. Burial: The choice between these options is not only practical; it can be ethical for some people. Express your wishes in advance, so arguments don’t arise.
• Share Policy Details: Let relatives know the name of your insurance company, your policy number, where documents are stored, and the name and contact information for your agent.
• Put instructions in writing: In addition to an insurance policy, consider getting:
  • A letter of instruction that outlines your wishes, lists your financial accounts and policies, and provides guidance for your loved ones.
  • An estate plan that includes a will, a power of attorney, and a healthcare directive
  • A pre-arranged cremation agreement, if applicable

Alternatives If Life Insurance Isn’t Available

Life insurance is one of the most effective ways to cover funeral expenses, but it isn’t available to everyone. Some people have health conditions that prevent them from meeting the eligibility criteria. Others may be unable to afford insurance.

Fortunately, there are alternatives. Here are some to consider.

• Saving in a payable-on-death (POD) account: A POD account works just like a regular savings account. A beneficiary is named, and they receive the money upon your death by presenting a death certificate. The biggest downside is that the beneficiary is not obligated to use the money for your death expenses, so trust and communication are important.
• Prepaid cremation plans: As previously mentioned, you can also prepay for cremation directly to a provider. This approach locks in current prices but limits flexibility if plans change.
• California and county-level indigent cremation programs: Low-income families in California may have cremation costs covered by the county. Eligibility varies by location.
• Veterans’ benefits that may offset cremation costs: Veterans may be eligible for burial benefits to help cover cremation costs. They may also be entitled to interment at a national cemetery and a flag ceremony.
• Crowdfunding and community support: Local funding campaigns can help with funeral expenses.
• How Opal Cremation can help families with limited resources find a path forward: Opal provides low-cost cremation and truly all-inclusive prices to families in Los Angeles, Orange County, and throughout Southern California. We offer financing and can help make funeral expenses more affordable.

Step-by-Step Checklist for Families

Getting insurance in place after a death can be complicated. Here is a step-by-step process that will guide you through.

The first 24 to 48 hours.

1. Obtain an official pronouncement of death from a hospice nurse, medical professional, or the coroner.
2. Contact the funeral provider. They will guide you through the next steps, such as obtaining a death certificate and arranging cremation.
3. Locate the life insurance policy. Hopefully, your loved one has told you where to find the policy. If not, you may check bank statements for premium payments to identify the provider.
4. Don’t pay for anything out of pocket if you can avoid it. An assignation of benefits may prevent you from covering fees up front.

Questions to ask before signing any assignment forms:

Before signing any assignment forms, consider asking:

• What is the policy’s current death benefit? Some policies change over time due to premium lapses or loans taken out against the account, so the coverage amount may have changed from the original face value.
• Who is the named beneficiary? Only the beneficiary can sign the Assignment of Benefits. If they are deceased, a minor, or otherwise unavailable, legal intervention may be necessary to complete the assignment process.
• How long does insurance typically take to pay? Ask about the timeline so you can plan accordingly. Keep in mind that California providers are required to pay claims within 40 days of receiving proof of death, or they face interest penalties.
• Does the cremation provider accept insurance? Confirm that your chosen provider accepts assignments and whether they charge any fees for processing.
• Are there any exclusions or waiting periods that could affect the claim? Ask the provider whether there are any circumstances that could delay the payout, such as a contestability period, cause-of-death exclusions, or waiting periods on final expense policies.
• What happens if the benefit exceeds cremation costs? If the benefit exceeds the cost of cremation, the remainder should be paid directly to the beneficiary. Find out the timeline for that payout.

Tracking the Timeline and Following Up on Claims

Here are some tips that will ensure you get paid on time:

• Get a claim confirmation number: This gives you a reference point for follow-up calls.
• Note the date the claim was submitted: A date reference will help you determine if your provider exceeds the 40-day limit when funding the claim.
• Keep a log of every interaction: Know who you spoke to, when, and what was discussed. This record can be invaluable in the event of disputes.
• Know what to do if the payment is delayed: if the payment is delayed beyond the 40-hour window, you have the right to file a dispute with the California Department of Insurance. The provider may owe you interest for the delayed payment.
• If the claim is denied, request a written explanation and review your options. You may be able to appeal the decision on your own or with the help of an estate attorney.

Opal Cremation Assists with the Insurance Process

At Opal, we understand the insurance process can be complicated. We offer Southern California families assistance for no additional charge. It’s all part of our truly all-inclusive packages that establish us as the most transparent provider of direct cremation in Los Angeles and Orange County.

Contact us to learn more about our direct cremation services in Los Angeles and Orange County.

FAQs

What’s the most common challenge families face when using life insurance?

Cremation providers typically require payment before or at the time of service, while life insurance claims can take days or weeks to process. Families are often caught off-guard by this gap.

What documents are usually needed to file a claim?

Most insurers require a certified copy of the death certificate, the original policy or policy number, and a completed claim form. Having these documents ready can considerably speed up the process.

What if the policy is not enough to cover the full cost?

If the policy isn’t enough to cover the full cost, families can use it as a partial payment and cover the balance another way.

What should families do to prepare?

Families can prepare by locating and reviewing existing life insurance policies as soon as possible, knowing the policy type, insurer, and benefit amount, determining whether the provider accepts an assignment of benefits, and ordering death certificates promptly.

Does the type of life insurance policy matter?

Yes. Term life and whole life policies typically cover cremation, but other policies, like accidental death-only coverage, may not apply. Small final expense or burial policies are often specifically designed for this purpose and tend to pay out quickly.

Additional Resources

• A Guide to Cremation Costs in California
• Advanced Planning for Healthcare and Cremation in California
• Why You Should Plan Ahead: A Primer on Prepaid Funeral Plans