Let’s be honest, if you made it to this article, you likely have a working knowledge of burial insurance, or already have a policy. We will keep this brief introduction to burial insurance quick.
Burial insurance is a form of minimum life insurance, a whole life insurance policy. That means it lasts for your entire life. So long as you make your premium payments on time the policy will never be canceled. You will never outlive the policy.
Burial insurance is designed to cover the cost of your burial only. There are legal strings attached to a burial policy specifically stating that the money can only be used to cover your final expenses including the burial at cells, services, and products necessary. This means that your beneficiaries cannot use the money to pay off unrelated debt or replace lost income.
Burial insurance comes in a minimum death benefit amount. Typically speaking the coverage you can get ranges between $2,000 and $25,000. If you need a particularly expensive Funeral Service you might be able to find coverage up to $50,000 but again, you probably won’t need it since the limitations stipulate you can only pay for the burial with this money.
Often times, for people with estates, burial insurance can be just a small part of their financial planning strategy. However, after death, it is important to make sure that taxes are filed correctly in order to protect your family from financial harm. Knowing how taxes work on burial insurance is important to be able to pay for your family’s financial protection in the event of your death now, and save some money along the way.
So, let’s get to the real reason you came here, the answer to the question…
Is Burial Insurance Tax Deductible?
When purchasing a burial insurance policy as a part of your estate, the topic of burial insurance tax deduction walks a bit of a fine line. The IRS stipulates that most people don’t qualify to claim tax deductions on their burial expenses but if you have an estate you may be able to deduct them.
To expound upon how this IRS tax deduction for burial expenses works, individuals cannot deduct any funeral costs on tax returns. Mainly because when a burial insurance policy is paid out, they are no longer alive to make money which taxes are paid on. You can deduct medical expenses but not funeral expenses. Medical expenses have to be things that have been used to treat or prevent a condition.
However, if the taxes you are trying to deduct come about during the settling of an estate, you do have the potential to claim any burial expenses as a deduction if and only if you used money from the estate to cover these costs. The reality is that most states do not use this method of deduction because it is less than the amount taxable.
Nonetheless, those who are executors of Estates which are subject to tax are able to use multiple forms of deductions including the cost of funeral and other final expenses in order to reduce the total taxable income of the estate.
How Do Tax Deductions on Burial Insurance Work?
While tax deductions on burial insurance are not allowed by the IRS, there are ways that you can deduct your burial and funeral expenses through your estate in other ways.
If your estate pays for the cost of your burial expense or final expenses, you are able to deduct the cost of these burial expenses from your estate’s tax return.
When your estate is valued over $5 million, you are required by law to file a tax return on it. In this case, you are definitely better off for tax purposes considering paying for burial expenses with your estate rather than with a burial insurance policy.
However, depending on the type of funeral expenses you plan on incurring, it may make more sense to pay the small burial insurance policy monthly premium, rather than paying the full cost of your funeral, just to deduct it from your taxes and save a few thousand dollars.
Because of the complexity of the United States Tax Code, and the variance in costs of funerals, life expectancies and more. it is best to speak with a financial advisor or independent life insurance agent about your plans for burial expenses. Our experts can help you understand the tax deductions you may be eligible for on your burial expenses, and help you get the right information to make the best financial decision for your family and loved ones.
What Burial Expenses Are Tax Deductible For Estates?
The tax-deductible burial expenses include:
How Do I Report Funeral and Burial Expenses for Tax Purposes?
If you are the administrator for an estate and you are trying to calculate the tax liability and Report funeral and final expenses you have to use Form 706 Schedule J. Schedule J is called the funeral expenses and expenses incurred in administering property subject to claims. This is an attachment to Form 706.
Funeral Expenses and Expenses Incurred in Administering Property Subject to Claims is an attachment to Form 706. On this form, enter the total under Total funeral expenses on Line 1 of Section A.
How Do I Handle Accounting For These Tax Deductions?
If you look at that schedule you will have to list the funeral expenses in an itemized fashion under Section 8 and then complete the total cost. If your estate with reimbursed for these funeral costs it has to be deducted from the total expenses prior to making the claim with form 706.
Keep in mind that federal reimbursements like death benefits from Social Security and Veterans Affairs are not able to be deducted.
Other Frequently Asked Questions
Is funeral insurance tax deductible?
Funeral insurance is not tax-deductible. Much like burial and final expense insurance, this is not allowed by the IRS, however, these expenses can be deducted via your estate’s tax form if you elect to pay for your burial expenses with your estate rather than a burial insurance plan.
Can you deduct funeral expenses on a 1041 tax form?
No, you cannot.
Can you claim life insurance as a tax deduction?
Again you can only claim the final expense portions if it was paid for out of an estate otherwise your life insurance is not a tax deduction.
Is life insurance a tax write off?
No, it is not.
Is Burial Insurance Worth It If I Have An Estate?
Overall having burial insurance is absolutely worth it if you don’t have access to other life insurance policies or you don’t qualify for them.
The cost is going to be minimal especially for people who are older or who have pre-existing conditions.
When you compare the cost of burial insurance to the outlandishly high fees that you would face for a universal or Term Policy from the same company because of a pre-existing condition it is absolutely worth it.
This type of coverage is perfect for people who truly cannot afford anything else or who do not qualify for anything else and it is well worth the money in terms of the peace of mind it can afford you and your family.
For those with existing life insurance policies already encompassed in an estate, burial insurance may not be best for you, depending on the type of funeral expenses you plan for, and the life expectancy you have, it may make more sense to use your existing life insurance coverage to cover the cost of your burial, or it could also make sense to purchase burial insurance, which may cost you money up front, but less than you would save in tax deductions subtracted from the burial cost charged to your estate.
Finding The Best Best Burial Insurance Plan
Finding the best burial insurance plan comes down to your ability to compare rates and policies. We work with some of the best burial insurance companies on the market to find our clients the best burial insurance rates possible.
Give one of our independent life insurance agents a call today, or get started with our online burial insurance quote tool for quick and easy burial insurance quotes!