The Rev Bryan Kerr says the bill for burial or cremation is out of control - rising by 80% in a decade to an average £3,456.
"With some of the most vulnerable people in our society being the worst affected by funeral poverty it does not take a big leap to work out that people will begin to rely more and more on payday loan companies to bridge the gap, plunging them further and further into debt," he told the General Assembly of the Church of Scotland.
Mr Kerr, minister at Greyfriars Church in Lanark, said that current government relief does not go far enough.
About half of applicants for support are unsuccessful, and those who do receive help get on average £1,225, he said.
The minister wants the UK Government to use National Insurance to offer a basic allowance, with people free to top it for more elaborate ceremonies.
"Tax rising is never popular," he said. "However, we all need a funeral of some description.
"Every person would benefit and many of us need to benefit."
He also calls for councils to rein in their costs.
"Such a scheme as providing a state insurance for funerals, radical as it seems, would also require the local authorities and others who operate burial and cremation services to show restraint in charging to ensure that they did not just bleed the system dry with excessive charges," he said.