With funeral costs continuing to rise, many people worry about the financial burden these may place on their loved ones when they die.
It is, however, possible to plan ahead for funeral costs with a funeral plan or life insurance policy, although it’s important to get to grips with the various types of plan and cover first, along with their pros and cons.
Making provisions for your funeral costs means that your family or friends won’t have to worry about footing a hefty bill in what is already an emotional time.
The average funeral in the UK is about 45% more expensive than a decade ago, according to SunLife. As a result, more and more people are setting up funeral plans or taking out life insurance in order to cover some or all of the cost.
The term “funeral insurance” is often used loosely to refer to either of these options, as either way, you’re making a payment (or payments) in advance so that your funeral can be paid off later.
In this article, we go through what funeral plans are, touch on over 50s life insurance, and list a few alternative ways to pay for a funeral to help you plan ahead and pick the option that suits you best.
What is a funeral plan?
When you take out a funeral plan, you are effectively paying for your funeral in advance. They are offered by most funeral directors, and you can choose to either pay a lump sum or in monthly installments until the cost is covered.
One of the main benefits of a funeral plan is that you will be charged the current rate for a funeral, rather than the rate at the time of your death. So, with funeral prices expected to keep rising in the coming years, this can save you and your loved ones a lot of money.
As of July 2022, funeral planning services are regulated by the Financial Conduct Authority (FCA). The FCA’s regulations mean that companies have to provide clear pricing for their services so you won’t end up paying more than you expect to for a funeral plan.
What is covered by a funeral plan?
A funeral plan allows you to plan for and pay for your funeral according to your wishes.
Most funeral plans will include the services of the funeral director which will usually include the following arrangements:
- Organising moving, storing and dressing the body
- Ordering the coffin
- Arranging a hearse and limousine
- Arranging the ceremony and burial or cremation
- Organising any necessary paperwork, including medical certificates
It will also include third-party costs for cremation or burial, whichever you prefer. A burial plan will cover the cost of digging the grave but not the plot or the headstone itself.
Whether additional services are covered depends on your plan and what you’re willing to pay. For example, more expensive plans might include better coffins, viewings of the deceased and transport for funeral guests. You can also put aside money to pay for flowers or a wake.
What happens to my money in a funeral plan?
When you pay into a funeral plan, your money is typically invested into a trust fund or an insurance policy until it is required for your funeral. This fund is managed independently of your provider. When you die, the money will be paid out to the provider in order for them to make the necessary arrangements.
FCA regulations mean that any money you put into a funeral plan is protected under the Financial Services Compensation Scheme (FSCS), meaning that if you buy a funeral plan and the company goes bust before your funeral, you will get your money back.
What are the downsides of funeral plans?
One downside of funeral plans is that they are currently not government-regulated, which has led to cases of misleading plans being sold and a general lack of customer protection, with minimal consequences for the providers. However, the Financial Conduct Authority has announced that they will begin regulating funeral plans in July 2022. At the moment, some funeral plans are regulated by a body called the Funeral Planning Authority (or FPA), who have a set of standards their members must follow.
If you are looking at getting a funeral plan, it’s a good ideato make sure that your provider is a member of the FPA before buying a funeral plan from them before July 2022; you can do this on the FPA’s website.
Another potential (but unlikely) downside is that if funeral prices were to drop between you purchasing the plan and your death, you would be paying more for your funeral than necessary. Funeral plans are experiencing a period of popularity with prices expected to continue to rise according to current trends, but it’s worth keeping the risk in mind before buying.
Can I pay for my funeral with life insurance?
You could also pay for your funeral using an over 50s life insurance policy. These are life insurance policies that are guaranteed to pay out a lump sum when you die, on the condition that you pay monthly premiums for the rest of your life, or until you are 90 in some cases.
This could be a good option if you cannot afford a funeral plan, but would still like to arrange some kind of cover for funeral costs and ease pressure on your loved ones. Unlike other kinds of life insurance, you won’t be asked for your medical records when you apply for an over 50s policy, so you are guaranteed to have your application accepted. Because of this, the payout will be around £3,000, which is not as high as some other life insurance policies, but would still go a long way towards funeral costs.
Besides the low payout, the other main downside of over 50s life insurance is that you could end up paying more overall in premiums than your loved ones receive as a payout. This could happen, for instance, if you take the policy out in your early 50s and do not pass away until your 80s. Over 50s life insurance is a big financial commitment, and you won’t be able to have your premiums refunded if you decide to cancel early.
Read our guide Life insurance for over 50s explained for more information, and a better sense of whether this could be the right option for you.
Other ways to pay for a funeral
Paying for your funeral from your savings
Of course, it is not at all uncommon for people to pay for a funeral service using the estate of the person who has died. In other words, if you have a good amount of savings and have set up your will properly, your loved ones should have little trouble using these funds after you die in order to pay for the funeral.
It could take a few weeks for your loved ones to gain full access to your accounts after your death, as the right documentation has to be exchanged and processed, and probate has to be granted. However, some banks will pay up to £5,000 of funeral costs out of the account to the funeral director if given an invoice. This process is typically handled by the executor named in your will.
Otherwise, it is possible for a loved one to pay for the funeral themselves and then claim the money back from the estate before the rest of it is split up between beneficiaries. However, it will take a while for this to process, and they will only receive this after mortgages and debts have been paid back first.
The Funeral Expenses Payment
If your loved ones are claiming benefits then they can apply for the Funeral Expenses Payment (in England, Wales and Northern Ireland) or the Funeral Support Payment (in Scotland). Under these schemes, the government will pay for most of the necessities of a funeral from the cheapest local options, and then claim the money back from your estate later on. This could be suitable if you have enough in your savings to cover your funeral costs, but your loved ones do not and won’t be able to access your funds for a while.
For a more in-depth look at these options, check out our article on How to pay for a funeral.
Getting started writing a will
It’s a good idea to write your will and get your affairs in order if you have not already done so. This is particularly true if you do not intend to get a funeral plan or life insurance and expect your funeral to be paid for out of your savings, so that the payment process will be as smooth and stress-free as possible for your loved ones.
Which? provide an easy and affordable way to write your will and ensure the people you care about are looked after when you’re gone.
They’ve done everything they can to make the process as straightforward as possible, including printing and delivery to your door. You can even get your will reviewed by their specialists to make sure it’s completed correctly.
Prices start at £99.
If you think that a funeral plan or over 50s life insurance is the right option for you, then make sure to compare plans from plenty of different providers and check their policies very carefully to ensure you are getting the best deal possible. It would also be worth making sure that a funeral director is an FPA member before applying for a funeral plan with them, if you are doing so before July 2022.