We get it: life is messy and full of difficult conversations. One of the hardest is making final arrangements for you or a loved one.
At Quotes Parade, we understand this conversation better than most. So we have developed this guide based on common expenses we see for our clients. It will illustrate how you can remove the worry of “How do I pay for this?” and focus on celebrating life.
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Most Americans opt for a traditional funeral and burial service (almost 70% as of 2015). However, most families are not aware of the total costs of these services until actively planning a funeral for a deceased loved one. To help understand the process, the costs, and the planning needed, we have outlined the typical services and associated costs below–
Funeral Director – $1,500
This is the most important role when making final arrangements. They will coordinate many of the services needed and shoulder much of the burden on the day of service including transportation, mortuary service, and accounting of total expense for the day.
Casket – $2,500
While the cost and quality of caskets can vary, a good casket is a large portion of final costs. The funeral director will be able to assist with selection based on your needs and budget.
Embalming – $500
Necessary for preserving the memory of your loved one. This includes actual embalming, dressing, and makeup.
Grave Site – $1,000
The first step in preparing the resting place is to select the location of burial. Purchasing rights to a plot vary depending on state/county but usually requires a significant investment.
Grave Digging – $800
Once the resting place has been selected someone must prepare it for your loved one. The site will be excavated based on local code (6’ is still the generally accepted depth) and then, after the service, they will assure your loved one is gently tucked away.
Grave Liner – $1,000
Made of concrete, the liner protects the grave site so it does not collapse and is a necessary part of preserving your loved one. Note that state laws do not require this but most cemeteries require a liner to protect the structural integrity of the field.
Headstone – $2,000
Certainly grave markers vary in size, complexity and material. However you choose to make a monument to your loved one’s legacy will also be a large part of the incurred expense.
Total Estimated Costs – $9,800
How do I Plan for Final Costs?
It is true that the total cost for a funeral is usually 2x what people anticipate. Further complicating this is the fact that most people do not take the time to make a proactive plan–meaning the family is making these decisions while grieving for the loss of their loved one. Out of the anticipated costs, there are 4 which can be determined in advance: the grave site, the liner, the headstone, and the casket. The others will vary depending on when your family requires service. Keep in mind that most families will opt to obtain a grave site as part of their planning but most leave the casket, liner, and memorial until making final arrangements.
Since there will always be variation in costs, we recommend life insurance as a method of planning. It will assure that you have enough funds on hand when needed. In addition, life insurance will actually result in a lower out of pocket expense leaving more cash on hand.
Despite being unable to predict final expenses with absolute certainty you can still develop an estimate using today’s costs. Consider the costs for the service, internment, wake, outstanding debt, and funds left for the family. This will be the number to begin planning around.
What is the Best Life Insurance Policy for Addressing Final Expenses?
With an understanding of how much funding will be needed to meet your planning goals, you can begin considering how to meet them. At Quotes Parade, we have found that each of our clients who have taken on a life insurance strategy, whether as a short-term or permanent solution, have been well prepared to meet the financial challenges of final arrangements.
Term Life Insurance
Term insurance is an inexpensive method of planning for final expenses. Terms may be elected in years; up to 30 per policy. The earlier in life you purchase a term policy, the less costly the annual premium. The reason it is generally less costly is that the policy builds no cash value. So if it is not used during the policy term, you have received no cash benefit for the policy; though the piece of mind is priceless.
When deciding if term life insurance is the right fit for your situation, consider the following example:
If a policy is taken at age 35, you can anticipate approximately $23 per month in expense for a policy offering a $250,000 benefit. If this policy is taken to age 65, the entire out of pocket expense is $8,280–a savings of $1,620 when compared to the estimated $9,800 in final expense. This is a savings of 15%. PLUS, the benefit of $250,000 will more than account for final expenses and clearing most average debt.
Permanent Life Insurance
Term insurance is a great, inexpensive way to meet your planning needs. However, with life expectancy approaching 88 years old most of our clients are trending towards a permanent policy which builds cash value. Permanent Insurance comes in many formats. For our purposes, let us look at a general whole life policy.
In the same scenario as above, if taken at age 35 the anticipated monthly premium is $190 for a $250,000 face value policy. Looking forward to age 65, the entire out of pocket cost would be $68,400. However, the policy will actually have a cash value of $95,000–an internal rate of return of 9.05%. At this stage the policy will also include a few benefits:
- $250,000 face will apply for tax-free income
- $191,000 guaranteed death benefit if you stop making payments at age 65
- A conversion option for a $500,000 20-term policy offered at age 65
In this scenario, the premium invested outpaces the stock market and is insulated from a market crash. Even if the cash is withdrawn without triggering the death benefit, the profit of $26,600 should be adequate to cover your final expenses.
Where do I Start the Conversation?
We find that most clients come to us with an idea of their final costs. For those unsure, we believe the $9,800 estimate to be a good starting point. From here we have a discussion about age, health condition, and other areas where you may wish to apply the policy value. The overall outcome of these conversations tends to be a sense of relief knowing that loved ones will not bear a burden when planning a life celebration.
If you are ready to discuss your plan, give us a call and see how Quotes Parade is Putting the Life Back Into Life Insurance.