Cleanup Fund

What is a Cleanup Fund

A cleanup fund is an insurance term referring to the final expenses associated with an individual after his/her death. The cleanup fund, or funds for final expenses, is a type of life insurance policy intended to cover the deceased's final expenses. Costs associated with funeral expenses, cemetery or mausoleum fees, and the costs of settling financial and property issues may be covered.

Key Takeaways

  • Cleanup funds refers to the money set aside to cover expenses related to the the insured's final rites and other obligations.
  • It can also refer to an account with funds for environmental cleanup costs for companies working in industries that operate in industries with substantial environmental risk, such as oil companies.
  • Establishing a cleanup fund for final rites is convenient because it doesn't require an exam and can be set up for amounts as low as $5,000.

Understanding the Cleanup Fund

A cleanup fund can be a standalone policy or written in conjunction with another type of life insurance policy. The cleanup fund provides the estate with a means of paying for certain expenses related to the death, including funeral expenses and the costs of settling the remaining estate.

A cleanup fund can also refer to an account which has monetary resources devoted to environmental cleanup costs such as those following an oil spill. For example, oil company British Petroleum established a $20 billion cleanup trust fund following the Deepwater Horizon oil spill of 2010. The fund had a broad mandate, from paying out compensation to those affected by the spill to court expenses to working with state authorities to clean up the spill.

In the case of individual insurance, costs most often associated with a cleanup fund include:

  • Funeral, memorial service, cremation, etc;
  • travel associated with such services, whether for the body of the deceased, or for family members to attend the services;
  • burial, grave, vault, crypt, etc;
  • paying off credit cards, medical bills, etc;
  • settling the estate, realtor fees, auction fees, etc;
  • legal fees, executor fees, etc. and
  • miscellaneous expenses.

These costs can be daunting, making a cleanup fund an important consideration. Financial experts regard it as a perfect vehicle to pay for final expenses because final expense insurance pays out upon death. The money is awarded to the beneficiary in a speedy manner (usually within a month), and is nearly always tax free. Most funeral homes are happy to work with clients who have final expense insurance, because they know they will get paid.

While term life insurance can be used for final expense needs, the policyholder would need to pass away before the end of the contract term, in order for it to pay out. Permanent insurance, be it whole life or guaranteed no lapse universal life, is the most secure type of policy to get if you want to use it for end of life costs.

Cleanup Fund Life Insurance Comes in Small Face Values

Whole life insurance with a face amount of $100,000 or more can be quite costly. Besides that, most people do not need that much coverage for final expenses. Therefore, cleanup fund insurance usually comes in face amounts from $5,000 to $50,000. They rarely require an exam, and are relatively lenient with health requirements. All these features make final expense affordable for most people.

What are cleanup fund life insurance's primary purposes?

The cleanup fund, or funds for final expenses, pays the deceased's final expenses such as those for a funeral, cemetery or mausoleum fees, and the costs of settling financial and property issues.

Is cleanup fund insurance expensive?

Not really because a lot of coverage typically isn't needed. It usually comes in face amounts from $5,000 to $50,000. The policies rarely require an exam, and are relatively lenient with health requirements.

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  1. BP. "BP Establishes $20 Billion Claims Fund for Deepwater Horizon Spill and Outlines Dividend Decisions." Accessed Oct. 6, 2021.

  2. State Farm. "Final Expense Insurance." Accessed Oct. 6, 2021.