What does it mean to use life insurance for funeral expenses?
This is planning for the beneficiary to use a portion of the death benefit of your life insurance to cover the costs of your funeral and other final expenses.
The benefits of planning to use life insurance to pay for your funeral are knowing your surviving loved ones won’t need to worry about how to cover those costs out-of-pocket during a difficult time.
How does life insurance for funeral planning work?
Before you plan to use life insurance to cover your funeral expenses, you’ll need to determine how much your funeral might cost.
In Canada, funerals generally cost between $1,000 and $20,000, with the average funeral costing $9,150.
You may also wish to pre-plan your funeral to:
- Get a more exact estimate for your funeral costs and locking in those costs
- Help spare your loved ones the burden of making tough decisions during an already challenging time
- Help avoid potential conflicts between family members over your funeral arrangements
When you die, life insurance death benefits are paid to your named beneficiary or beneficiaries. Beneficiaries are most often your spouse or partner, children or other loved ones.
In addition to funeral costs, you should also consider all the other things your life insurance death benefit may have to pay for:
- Debts including credit cards, mortgage, automobile and other loans
- Income replacement for a period of time to support your family
- Education costs for your children
Types of life insurance you can use to cover funeral costs
Because permanent life insurance provides guaranteed lifelong coverage, it may be your best long-term choice.
Term life insurance may be a good temporary option to cover your funeral expenses, however, to stay covered, you’ll need to ensure you renew your term life insurance, or convert it to permanent life insurance before the conversion period ends.
While you’re still working, your beneficiary can also use life insurance through your workplace benefits to cover your funeral costs. However, depending on the amount of the death benefit versus the cost of your funeral and other final expenses, you may need additional life insurance to provide the necessary coverage for your situation.