This page is for a family waiting on a claim: who gets the money, how soon, and what to do in the meantime. Our other insurance pages: Burial insurance explained, Burial insurance vs. life insurance, Life insurance, burial insurance or a prepaid plan and How life insurance pays a funeral home.
Can you use life insurance to pay for a funeral?
Yes.
With a typical life insurance policy, the insurer pays the death benefit to the named beneficiary. The beneficiary can generally use that money for a funeral, burial, cremation, household bills, debts or any other lawful purpose.
After.com's current guide draws the same basic line: life insurance can pay for funeral costs, but the money normally goes to the beneficiary, not straight to the funeral home. See After: Paying for a Funeral With Life Insurance.
Why do families still need money upfront?
Because the funeral and the insurance claim run on different clocks.
A provider may need payment, or an agreed way of paying, before final disposition (the burial or cremation itself).
An insurer may need:
- notice of the death;
- a claim form;
- a certified death certificate;
- proof of who the beneficiary is;
- time to review the policy;
- more paperwork in some cases.
So a family can know there's a $100,000 policy and still not have the money in the bank when the cremation has to be arranged.
Does life insurance pay the funeral home directly?
Not by default.
The named beneficiary usually gets the money.
Some families use an insurance assignment. This is a signed form that sends part of the payout to the funeral bill.
Before you sign an assignment, ask:
- How much of the policy is being assigned?
- Is the assignment limited to the actual funeral bill?
- Is there an assignment or processing fee?
- Who gets whatever is left over?
- What happens if the insurer takes longer than expected?
- What happens if the claim is challenged or denied?
Don't sign away a benefit you don't understand.
Are life insurance proceeds taxable?
For U.S. federal income tax, the IRS says life insurance money a beneficiary receives because the insured person died is generally not included in gross income. Interest paid on that money can be taxable, and special exceptions can apply.
See the IRS guidance on life insurance proceeds.
This is general federal tax information, not tax advice for your situation.
What if the policy benefit is larger than the funeral bill?
With an ordinary beneficiary arrangement, the beneficiary gets the policy money under the contract and can generally decide how to use it.
A funeral bill doesn't automatically use up the whole death benefit.
That's one of the biggest differences between ordinary life insurance and a prepaid funeral contract.
What if the beneficiary is the estate?
Then the path can change.
If the money is payable to the estate instead of a person, it may become part of settling the estate.
Creditors, probate and how the money is shared out may then be handled differently.
See Life Insurance Beneficiaries: Will, Probate, and Common Mistakes.
What if you cannot find the policy?
Don't assume there was no coverage.
Check:
- personal records;
- employer benefits;
- bank and credit-card statements;
- email;
- letters from an insurance agent;
- tax and financial-planning files.
Then use the NAIC Life Insurance Policy Locator if it fits your situation.
What should you tell the funeral provider?
Be specific.
"There is life insurance, but the claim has not paid yet. What do you require before disposition, and do you accept a verified assignment?"
That's far more useful than just saying:
"Insurance will cover it."
Frequently asked questions
Can life insurance pay for direct cremation?
Yes. A beneficiary can generally use a death benefit to pay for a direct cremation.
Does the insurer automatically pay the funeral home?
No, not with a standard beneficiary arrangement.
How quickly does life insurance pay?
It depends on the insurer, the policy, how the person died, and the paperwork. Don't promise a provider a date until the insurer confirms it.
Is the death benefit taxable income?
The IRS says money paid because the insured person died is generally left out of federal gross income, though exceptions and taxable interest can apply.
Can a funeral home take the whole policy?
Read any assignment carefully. Before you sign, be clear on the amount assigned, what happens to money left over, the fees and the other terms.