Unless you have liquid assets or the savings to self-insure, your death could burden your beneficiaries when you die. The fact is: Your financial obligations — like a mortgage or student loan debt — don’t die with you.
When you’re deciding whether or not to buy life insurance, consider the steep costs of dying.
Planning for what happens after you die isn’t an enjoyable process. But it’s important to think through the steep costs associated with dying, especially if you don’t have life insurance.
Without life insurance, your family and estate are responsible for the payments required to plan a funeral, pay off debt and settle other final expenses.
Weigh the typical costs of dying to help you decide whether to include life insurance in your financial planning.
Funeral and burial expenses
Planning even a basic funeral can cost $7,640, according to the National Funeral Directors Association. Costs increase with the addition of headstones, flowers, obituaries, and upgrades, depending on your location and your family’s wishes.
If you aren’t planning to be buried where you’re settled, your family will also have to pay for your body to be transferred. Your family would also have to pay for travel and lodging expenses for your funeral since most survivors wouldn’t live in the same place.
After you die, your loved ones are left to quickly figure out your wishes and a plan to cover the costs of your funeral. A funeral could include some of these costs:
- Removal and transfer of the body
- Burial plot
- Burial service
- Memorial service
- Hearse delivery
- Basic service fees
Unfortunately, few financial assistance programs are available to help with funeral and burial costs.
Debt and taxes
When you die, your debt is transferred to your loved ones. And if your death is health-related, this can include astronomical medical bills too. Other debts that could end up as someone else’s responsibility after your death include:
- Student loans
- Car loans
- Credit cards
- Business debt
- Income and other taxes
Any debt in your name will first be paid by your estate, which is all the assets you owned at the time of death. If you have a lot of debt and plan to leave your family members an inheritance, keep in mind that they’ll only receive what’s left after your debt is paid off. And if your estate doesn’t cover all of your debt, your family members could be left to pay your debt out of pocket.
Estate taxes are something your family would only have to worry about if your assets were to exceed $11.58 million at the time of your death. Your estate tax rate can sometimes be up to 40%.
Replacing lost income
If you’ll leave behind a family when you die, you’ll want to consider whether your family relies on your income. Your family members will have to find a way to replace your lost income.
Something else to consider is the possibility that your family may have unforeseen expenses to find ways to replace your income or maintain a new lifestyle. For example, your spouse may choose to go back to school to support the family. Or, your loved ones might have to relocate to downsize. And if you owed a home together, your spouse may have to sell your home, which can include the cost of listing your home for sale, finding a new place to live and moving costs.
Unfortunately, these circumstances don’t usually provide people with much time for planning, preparing or budgeting to make such changes.
Some daily living expenses your family might need to pay for include:
- Rent or mortgage
- Property taxes
- Medical expenses
- Long term medical care
- Car insurance or loans
Since losing a loved one can be a traumatic experience, spouses, children and close family need time to mourn. Most people find the loss of a loved one difficult, but some will find it almost impossible to resume a normal life or go back to work shortly after a death. This usually results in family members needing to take time off of work to process their loss.
Not only are loved ones grieving, but they will also need time off of work to make funeral arrangements travel to the funeral and plan for financial obligations and the next steps for their life. While some jobs offer bereavement leave or unpaid time off, some family members may need more than the allowed time off from work. This can mean lost days or weeks of wages for loved ones.
Time away from work can mean a loss of wages, which can make other expenses an even heavier burden. Otherwise, family members may have to go back to work before they’re ready in order to pay for financial obligations.
Many people may need counseling or therapy to work through the emotions that happen after the death of a loved one. Along with grief, some people are forced to give up important things like higher education, hobbies or specialized care for children. Financial hardship and excessive loss can compound the need for counseling. The amount of time, sessions and location will all factor into the cost of getting help. Not all health insurance policies cover the costs of therapy. And, paying out of pocket for counseling can be expensive.
If you own a business, you could leave behind more expenses for your family, business partners and loved ones to figure out. First, if you own a business, you might not have retirement accounts for your family to fall back on. Also, if you used your family’s assets as collateral for a loan to start your business, you’ll have to pay those loans back, which could mean your family losing their home or other personal assets.
Another thing to consider is the expense of keeping your business running. If you own a small to medium-sized business, your family will either have to replace your income or ensure the business can continue. This could mean hiring new people and keeping up with staff salaries, rent, leasing costs, and utilities.
Some people choose to take out key man insurance so that if you die, the payout can allow your company to stay afloat while figuring out how to save or sell the company. Others choose to set up a buy-sell life insurance agreement so that if you die, your co-owners receive a benefit allowing them to acquire your share of the business. The buy-sell life insurance agreement also offers an additional sum to compensate your family.
These types of insurance ensure your family’s assets are protected, and the future of your business and business partners are taken care of.
If you die and have already made commitments for the future, you may want to consider them an expense you’d want to cover. Take into account a couple of possibilities:
- Education plans. If you have children and plan on sending them to college, you might want to factor in the cost of their education.
- Long term care. Are you currently taking care of a parent’s medical or nursing home costs? If you are, these responsibilities will still need to be met after you die.
How Life Insurance Can Help Pay for Funeral Expenses
If you die unexpectedly without a life insurance policy, the weight of funeral expenses during a time of mourning can add high levels of stress to a grieving family.
The best time to buy a life insurance policy is when you’re young and healthy, to get the best rates with the most coverage. Many people choose a term life insurance policy to cover the time when they’ll have the most financial obligations, such as while you’re raising kids or before you retire.
However, people who are over 65 or already sick may decide to purchase a final expense life insurance policy. These policies have a benefit ranging from $5,000 to $25,000 to cover the cost associated with a funeral without having to take a medical exam.
Dying unexpectedly without life insurance comes with a lot of expenses you might not have considered. If you are leaving behind family, you have debt, own a business or want to ensure your loved ones have financial peace of mind after you die, you might compare different types of life insurance options to find a policy that fits your needs.