Funeral Expense Insurance
Get a Quote »Funeral expense insurance is usually a whole life insurance policy paid in several installments or in one lump sum. It is designed to cover most, if not all costs, associated with burial expenses.
Funeral policies are very valuable to families and estates as they efficiently and immediately provide funds to cover funeral expenses in times of need. The fact that life insurance proceeds are income tax free is a significant advantage over other assets.
Whole Life Insurance Policy For Burial Expenses
Whole life policies are the preferred coverage type for those looking to pre-plan while also providing the funds needed at passing.
Policy face amounts will usually range anywhere from $5,000 to $30,000 depending on the anticipated funeral costs and other out of pocket expenses such as travel.
Underwriting is often simplified and invasive medical exams are not needed to purchase insurance.
The proceeds can be paid to the deceased’s estate, a named beneficiary, or a funeral home of choice.
It is prudent to name a trusted person (or estate) as a beneficiary in the event that the funeral home changes ownership or is out of business in the future. This way you can be certain your funds will be available when they are needed most.
Insurance premiums will not increase over time with almost all policies. Owners can pay monthly, quarterly, semi-annually, annually or in one lump sum. Most often, premiums will be slightly less when paid for annually when compared to other methods.
Assuming the funeral insurance policy is purchased at a younger age, then most policies will build-up enough cash value and dividends to pay for the cost of the policy itself. In this way, the policy will be paid up and the insured will no longer need to pay premiums in the future.
Irrevocable Funeral Trust Life Insurance Policy
An irrevocable funeral trust is one that holds the life insurance policy inside a trust. The irrevocable trust protects the cash value of the life policy from creditors such as Medicaid. Typically, these policies are funded with a single premium or in fewer installments.
In most states, Medicaid allows the insured to save at least $15,000 toward their funeral expenses. However, current laws require those involved in the spend-down process to usually spend most, if not all, of the available cash value in a traditional, unprotected life insurance policy.
Irrevocable funeral trusts avoid this issue as Medicaid cannot easily attach to these life policies. The primary reason is irrevocable policies have no cash value to the insured. Thus, the policy can be used at passing to cover final expenses, but any unused funds may still be vulnerable to attachment. In most cases, family members or trusted friends are named as the beneficiary.
Medicaid Protection Through A 1035 Tax-Free Exchange
Life insurance funeral trusts funded with a single premium can be very advantageous for those involved in the Medicaid spend-down process. A 1035 tax-free exchange can help protect the accumulated cash value in an existing traditional life insurance policy that might otherwise need to be spent down.
Of course, an irrevocable policy can also be funded with cash or from the sale of other assets. Protecting existing cash value in a paid up policy is a common method however. In many cases, both cash and exchanged funds are co-mingled to maximize the amount protected.
IFT policisies are also wise for those who simply want to efficiently account for burial expenses without subjecting the funds to creditor attachment at a later date. The proceeds are income tax free and can be made available almost immediately to help family and loved ones.
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