Many funeral homes use funeral funding companies to assist with cash flow by advancing the payment of the bill with life insurance assignments. Here’s how it works. A family presents themselves at a funeral home with limited cash and a life insurance policy. A family member is the named beneficiary. Rather than wait the weeks for the life insurance company to pay the claim, a funeral funding company immediately advances the money to the funeral home and takes an assignment of the policy. A fee is paid by the family or funeral home for the advance of funds.
Problems do arise. We get calls weekly from frustrated funeral homes. Here’s why. If the family identifies the incorrect beneficiary, a minor is the beneficiary, or the life insurance company fails to honor the life insurance assignment, the funeral home must repay the advanced funds and may be stuck with a large bill.
Are life insurance assignments necessary? I only recommend the use of funeral funding of life insurance assignments when a funeral home needs the cash flow and no other assets exist, regardless of liquidity. Remember, if a funeral home has no cash flow issues, it can take a life insurance assignment without the need to use a funeral funding company. Most importantly, if a decedent dies with non-liquid assets (real estate, CDs, cash in a safe deposit box, annuities, etc.), other payment options should be explored first. Through probate, these assets can be accessed quickly to satisfy a funeral expense without the need to use a funeral funding company. Remember The Probate Pro as a resource to assist in these funding decisions.