Crowdfunding websites such as GoFundMe.com have become huge cash generators for people experiencing unexpected financial loss — the same people you’re trying to help with life insurance.
While these group efforts often offer heart-warming stories of people across the world uniting to help others in need, lesser known are the downsides: the donations can create tax headaches for recipients, some crowdfunding websites take a percentage of the total raised, and sometimes the campaigns don’t generate the money needed.
Whether crowdfunding is competition to the insurance agent is debatable, but it certainly is a trend worth noting, especially in how it may impact the mindset of your potential customers. In an era where friends and family can easily set up a web page to help a family in financial crisis, is crowdfunding an alternative to life insurance?
Don’t let the popularity of crowdfunding give your clients a false sense of security. Make sure they know that affordable life insurance is a more reliable option to take care of their final expenses.
Crowdfunding to Pay for Funerals
Crowdfunding — donations from friends, relatives and even strangers — is used for everything from a life-saving surgery for a cat to college funds for the surviving children of a young father who died unexpectedly. While it can be a useful way to help families cover expenses not covered by life insurance, it’s increasingly being used to cover the actual expense of a funeral, often in place of life insurance.
Crowdfunding for funeral expenses is one of the most common charitable causes online, according to NerdWallet, which obtained data from four crowdfunding sites — GiveForward, GoFundMe, Plumfund and YouCaring. One site, GiveForward, reported that fundraising campaigns after a death have increased at twice the rate of other crowdfunded causes.
Two factors contributing to the trend may be the rising cost of funerals and Americans’ inability to stash away savings. The National Funeral Directors Association (NFDA) reported in December 2019 that the median cost of a funeral has increased 6.4% over the past five years to $7,640 and the median cost of a funeral with cremation has increased 7.3% over the past five years to $5,150. More than one in five working Americans — or 21% — don’t save any of their annual income for goals or emergencies, according to a Bankrate.com survey.
Crowdfunding Often Fails to Raise Enough
The reality, however, is that the crowdfunding funeral campaigns fall short of the cost of many funerals. Foxbusiness.com reports that the average funeral campaign on GoFundMe.com raises about $2,200, and on YouCaring.com, the average is $2,000 — just a fraction of that median cost of a funeral.
The majority of campaigns don’t meet their stated goal, The Atlantic reports.
Donors Often Unaware of Fees
Fees to use crowdfunding websites vary. FundTheFuneral charges a flat fee of 5% on each donation made to a funeral fund. According to the website, the fee goes to cover the cost of operating a website and business.
Some websites charge only the credit card processing fee, usually about 3%, with some offering to let the donor deduct it from the donation.
Tax Complications of Crowdfunding
Crowdfunding can raise the attention of the Internal Revenue Service (IRS), resulting in extra work and possibly headaches for the donation recipients — the last thing that caring donors would intend to do. In general, donations to crowdfunding campaigns are considered personal gifts and are not taxed as individual income. However, crowdfunding websites are required to file a Form 1099 with the IRS for campaigns that receive more than $20,000 in donations or more than 200 donations. If the recipient doesn’t report the nontaxable donation but the IRS receives the 1099 from the crowdfunding site, it can raise a flag, resulting in a tax notice, according to the Pittsburgh Post-Gazette.
Life Insurance: More Reliable Than Crowdfunding
Make sure your clients know that despite the popularity of crowdfunding today, they have options. They don’t have to rely on the generosity of others, they don’t have to worry about burdening their family and they shouldn’t wait until a crisis happens.
Final expense insurance is a type of life insurance that is affordable, can provide peace of mind and deliver a more reliable solution than crowdfunding. It can help ease the financial burden on loved ones by paying for many of the costs associated with funerals.
Learn More About Final Expense Insurance
To learn how to incorporate final expense into your business, register for the free webinar, “Life After AEP” on Tuesday, Feb. 11, at 11 a.m. Central Time. As the title suggests, the webinar will discuss cross-selling life insurance after Medicare’s Annual Election Period (AEP). Final expense insurance provides the opportunity to not only help clients but also grow your business. Selling just two final expense cases a week could earn you an extra $75,000 a year.
You also can speak to a Senior Market Sales® marketing consultant about final expense insurance by calling 1.877.888.0166.