The assignment of a life insurance policy is often the method used to pay a funeral bill. Some individuals have life insurance that they have purchased years ago. Long-standing policies, that have no outstanding premiums due and that do not have loans taken out against them are ideal for paying a funeral bill.
Some individuals may have purchased life insurance policies only several months prior to the death occurring, in which case there will likely be a “graded” or “limited” death benefit. This benefit will be determined by the life insurance company issuing the policy, and may be the return of premiums paid, plus interest, but it will not be for the entire face amount of the policy. The full death benefit will likely not be available until the policy is past the two-year contestable period.
An exception to this might be if the policy is underwritten and there have been medical exams associated with the underwriting, blood draws, etc. However, this kind of underwriting is usually reserved for larger policies, written on the lives of younger people.
Some individuals have a certificate of insurance through a group policy provided for them by their employer. While these policies can pay a handsome death benefit, accessing the death benefit can take several months. Finding the right human resources person at a company with knowledge of the policy and what the death benefit will be, and accessing the correct paperwork, make it difficult for the funeral home to take an assignment for these benefits.
In the State of Michigan, it is not allowed for a funeral home to take a pre-death assignment of a life insurance policy and a funeral home may not be the beneficiary of a policy. It will be up to the beneficiary to assign the policy, or a portion thereof, to the funeral home to cover the funeral expenses at the time of death.
For a funeral home to take an assignment of a life insurance policy, we generally need the issuing company’s name, the policy number, as well as the name, date of birth and social security number of the beneficiary.
Having a life insurance policy does not necessarily mean that accessing it for payment will be easy when a death occurs. Those planning on using a life insurance assignment should make sure things are in good order so that there are no impediments in paying in this way.
It is important that anyone who intends to have life insurance pay for his/her funeral, have the following items taken care of:
- Make sure all premium payments are up to date.
- Make sure all loans against the policy are paid back.
- Make sure the named beneficiary is up to date.
- Make sure the policy is easily accessible to the beneficiary and your family
If you have difficulty with any of these items be sure to speak with your insurance agent or one of our funeral directors.