What Is a Cleanup Fund?

Jim B.
Jim B.
Man climbing a rope
Man climbing a rope

A cleanup fund is a type of addendum to a life insurance policy designed to cover any costs that come up after a person has died. Chief among these are costs for funeral services and burial, but they also may include unpaid medical bills, money due on credit cards, and estate settlement charges. Using a cleanup fund is one way to assure that the descendants of the policy-holder are not burdened with overwhelming costs upon his or her death. It is important to understand, however, that such policies often come with heavy premiums that may not be worth the benefits that they provide.

As they age, many people have great concerns about the financial well-being of the loved ones who will be responsible for handing their estates after their deaths. This often leads them to take out life insurance policies, which they pay off while living so that their descendants may reap the benefits after the policy-holders die. Some people may not consider the prohibitive costs that can befall family members after a loved one dies. These costs are the reason an individual might enact a cleanup fund.

The benefit of a cleanup fund is that it provides descendants a financial boost to pay off the expenses associated with a loved one's death. Funeral services for the deceased along with burial plans usually comprise the main parts of these expenses. There are other costs that might crop up as well, such as any unpaid bills for which the descendants might be responsible. In addition, settling the affairs of the deceased can be costly in terms of the professional help that must be hired to undertake those matters.

Buying a cleanup fund can provide for all of these costs. These benefits are usually separate from the regular benefits of a life insurance policy. Although different insurance companies may have various standards concerning these funds, which are also known as final expenses funds, they generally pay off the benefits to descendants not long after the policy-holder's death.

One drawback of a cleanup fund is that the cost of paying the premiums associated with the policy can be substantial. It might be more cost-effective for individuals to invest the funds and save them for when they are needed as final expenses. In addition, there might be other policies that will provide just as much coverage as a final expenses fund at less of a financial burden for the policy-holder while still living.

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