If you’re on social media, then you’re probably familiar with crowdfunding. People utilize online crowdfunding websites to raise money for just about anything—medical costs, college tuition, veterinary expenses, and even vacations. It isn’t uncommon for someone to raise thousands of dollars crowdfunding, but some campaigns that go viral can earn millions!
Memorial fundraising is another common category of crowdfunding. These fundraisers are set up by family and friends seeking funds to cover burial and funeral costs for a loved one who has passed away.
According to GoFundMe, one of the largest crowdfunding websites, memorials are one of the company’s fastest growing categories, with 13% of its campaigns created in 2017 funding memorials.1
Sadly, it isn’t surprising that people often turn to crowdfunding to cover a loved one’s funeral expenses. The average funeral is costly, running about $8,000 to $10,000 for a traditional service and burial.2 And many people don’t prepare for this expense, leaving the burden for loved ones to figure out after they’re gone. Crowdfunding can be a wonderful way for donors to help a person or a cause. But when it comes to crowdfunding for funeral expenses, there are three risks to be aware of.
1. Funds may fall short
As mentioned earlier, funerals are expensive, with the average service and burial costing around $8,000 to $10,000.2 That’s a lot of money to drum up from family and friends online. For every crowdfunding campaign that meets its goal, there may be thousands that don’t.
If a campaign only earns $4,000, who is going to pay the other $4,000 in funeral expenses? Loved ones will be left scraping together funds during what is already an emotional and stressful time.
2. Tax issues
Donations made on crowdfunding websites are usually considered personal gifts, which aren’t taxed as income. However, if your crowdfunding campaign earns a large amount, you may catch the attention of the IRS.
Crowdfunding websites must report campaigns to the IRS that earn $20,000 or receive more than 200 contributions.3 If a campaign meets these thresholds, then the person who raised the money may wake up to find a big tax bill in the mail.
Crowdfunding campaigns can create complex tax questions and issues, so it may be necessary for the recipient of the money to work with a tax professional to sort it out.
3. Unfair prices from funeral homes
It’s difficult to think about funeral homes taking advantage of grieving customers, but according to Joshua Slocum, the executive director of the Funeral Consumers Alliance, crowdfunding may encourage some funeral homes to up-sell services to match a donation.1 In other words, if you go to a funeral home with $15,000 raised from crowdfunding, they may sell you a $15,000 funeral that is only worth $8,000.
A better solution: life insurance
With the success of many crowdfunding campaigns filling our feeds every day, it’s easy to be lulled into thinking your family and friends will be able to gather enough cash through donations to pay for your funeral expenses after you’re gone. However, this may end up causing your loved ones extra financial stress while they are grieving.
A better solution is life insurance. Life insurance pays a cash benefit to your beneficiary if you pass away while the policy is in force. Your beneficiary can use the money for any reason—to pay for your funeral, pay off debt, replace lost income, cover living expenses, fund college, save for retirement and so much more.
Many people forgo life insurance because they believe it’s too expensive. In fact, more than half of Americans believe life insurance costs 3x or more than it does.4 But the truth is, life insurance is less expensive than you might think! Many policies cost just dollars a day—less than a daily latte from a coffeehouse.
We’re here to help!
No one likes to think about what would happen if they unexpectedly passed away, but when you have life insurance, you can rest a little easier knowing that you’re providing financial care and support for your loved ones if the unexpected happens.
If you’re ready to learn more about life insurance, our agents are here to help! Give us a call at (800) 525-7662, and we’ll pair you up with a local Washington National agent, who can help you find the best life insurance policy for your needs.
1The New York Times, As Funeral Crowdfunding Grows, So Do the Risks, https://www.nytimes.com/2018/06/05/business/funerals-crowdsourcing-crowdfunding-scams.html, June 5. 2018.
2Parting, How Much Does the Average Funeral Cost?, https://www.parting.com/blog/how-much-does-theaverage-funeral-cost, January 23, 2018.
3Pennsylvania Institute of Certified Public Accountants, Go Fund Me and the Tax Implications, https://www.picpa.org/articles/cpa-now-blog/cpa-now/2017/04/26/go-fund-me-and-the-tax-implications, April 2017. 4Life Happens, https://lifehappens.org/, 2019
Insurers and their representatives are not permitted by law to offer tax or legal advice. The general and educational information here supports the sales, marketing or service of insurance policies. Based upon individuals’ particular circumstances and objectives, they should seek specific advice from their own qualified and duly-licensed independent tax or legal advisors.
Policies underwritten by Washington National Insurance Company, home office Carmel, IN.