Planning for end-of-life expenses is one of the most thoughtful things you can do for your loved ones. Many people choose to transfer ownership of a life insurance policy to a funeral home or assign benefits directly to cover funeral costs. While this can be a smart move, it’s important to avoid common mistakes that can cause delays, legal issues, or unexpected costs during an already stressful time.
Understanding Funeral Home Assignment
Before diving into the mistakes, it’s important to understand what it means to assign or transfer ownership of a life insurance policy to a funeral home.
A funeral home assignment is when you allow the funeral home to receive a portion or all of your life insurance policy’s death benefit to cover funeral expenses. This is often done through a legal document called an assignment of benefits, not by transferring full ownership of the policy.
While you can technically transfer ownership of a life insurance policy to a funeral home, most people simply assign the benefits. These two approaches are not the same and carry very different legal implications.
Mistake #1: Confusing Assignment with Ownership Transfer
One of the most common and costly mistakes is assuming that assigning benefits is the same as transferring ownership of the life insurance policy to a funeral home.
Assignment of Benefits gives the funeral home permission to claim a portion of the policy to cover the funeral bill.
Transfer of Ownership makes the funeral home the legal owner of the policy, which can create complications and remove your control over the policy.
Instead of transferring full ownership, use a funeral assignment agreement to direct funds to the funeral home while maintaining control of the policy.
Mistake #2: Not Confirming the Funeral Home Accepts Assignments
Not all funeral homes accept assignments of life insurance policies. Before proceeding, confirm that the funeral home you’re working with is willing and equipped to handle this process. Some smaller or independent funeral homes may prefer upfront payment or have specific rules regarding assignments.
Failing to confirm this in advance can delay funeral planning or force your family to find another provider during a difficult time.
Mistake #3: Incomplete or Incorrect Paperwork
Another frequent issue is submitting incomplete or incorrect assignment forms. Insurance companies require precise documentation, and even small errors—such as a misspelled name or wrong policy number—can delay the release of funds.
To avoid this:
Work closely with the funeral director to fill out the paperwork.
Double-check all policy and personal information.
Submit documents well in advance when possible.
Mistake #4: Failing to Notify the Beneficiaries
Even if you assign benefits to the funeral home, you should still inform the policy’s beneficiaries. Some beneficiaries may be unaware that the death benefit has been partially assigned and may expect the full payout.
Clear communication ensures that there are no surprises and that everyone understands how the funds will be used.
Mistake #5: Not Knowing What Happens to Excess Funds
When assigning a life insurance policy to cover funeral expenses, you may not need the entire death benefit. Many people overlook the question: What happens to the remaining funds after the funeral is paid for?
Unless you've transferred full ownership of the policy, the excess funds typically go to the named beneficiary. However, unclear documentation or vague assignment agreements can cause confusion or disputes.
Make sure your assignment clearly states:
The maximum amount to be used for funeral costs.
Who receives any remaining funds.
Mistake #6: Overlooking Policy Restrictions or Delays
Some life insurance policies come with restrictions, such as waiting periods or contestability clauses. If the policy is new or hasn’t met its minimum duration, the insurance company may delay payment or deny the claim.
This delay could leave your family responsible for out-of-pocket funeral costs temporarily. Always review the terms of your policy and speak with your insurance provider before assigning benefits to a funeral home.
Mistake #7: Not Reviewing the Funeral Home’s Pricing
Assigning life insurance benefits doesn’t mean you should ignore costs. Some funeral homes may increase their prices if they know payment is coming from an insurance policy.
To avoid overspending:
Request a detailed itemized quote before signing any agreement.
Compare pricing with other funeral homes.
Ensure that the assignment amount aligns with the actual cost of the services.
Mistake #8: Not Consulting a Financial Advisor or Insurance Agent
Transferring ownership of a life insurance policy or assigning benefits to a funeral home is a legal and financial decision. Yet many people do it without seeking advice.
An insurance advisor or financial planner can:
Help you understand the implications of assigning your policy.
Ensure that your loved ones are still protected.
Assist in finding alternative options such as funeral insurance or prepaid plans.
Final Thoughts
Assigning your life insurance policy to a funeral home can make the process of paying for funeral costs simpler and less stressful for your loved ones. However, it’s essential to avoid mistakes like confusing ownership transfer with benefit assignment, failing to verify funeral home policies, or neglecting proper documentation.
By taking a careful and informed approach, you can use your life insurance effectively to honor your wishes and protect your family during a difficult time.
FAQs
Can I legally transfer ownership of a life insurance policy to a funeral home?
Yes, but it’s not commonly recommended. Most people assign benefits instead of transferring full ownership, as that allows you to retain control of the policy and ensure excess funds go to your beneficiaries.
How do I assign my life insurance policy to a funeral home?
You must complete an assignment of benefits form with your insurance provider and work with your chosen funeral home to ensure proper documentation and agreement.
What happens if the funeral costs less than the policy value?
Any remaining funds after the funeral costs are typically paid to the named beneficiary, unless you have transferred full ownership of the policy to the funeral home.
