Are funeral insurance plans worth it?
Updated 08 January 2021
5min read
Funeral costs can be quite a shock when someone dies. It’s understandable why lots of people choose to take out funeral insurance or over 50s cover to pay for all or part of it. With your funeral expenses prepaid, your loved ones don’t need to worry about finding the money elsewhere, but is it a cost-effective way to plan for the future?
What is funeral insurance and how does it work?
Funeral insurance is simply a way of paying for your funeral in advance. You pay an agreed amount into the plan, and the provider then covers a number of the funeral costs. If you die before you’ve paid off the full amount, your family may need to foot the remainder of the bill.
There are a few ways to your plan might work:
- Lump sum – you pay the full amount upfront, which means your loved ones won’t have to make up for the shortfall.
- 12 months – this lets you spread the cost but minimises the risk that your family will need to pay the difference if you die early.
- Pay monthly for up to 30 years – some plans let you pay in very small instalments, which can make it easier to manage. Again, your family will have to cover any outstanding amount.
Most providers allow you to take out a plan once you reach 50, but some plans are available for people much younger.
What exactly does funeral insurance cover?
All funeral plans cover the services of a funeral director, including care and transport of the deceased, and a coffin. Some plans also cover visiting the deceased in a chapel of rest, doctor’s fees, crematorium fees and the costs of hiring a minister or celebrant.
Funeral insurance can be used whether you want a burial or cremation. However, burial is typically more expensive, and the costs of the plot and a headstone are generally not covered by the insurance – so these are significant sums that need to be paid at the time. Embalming, flowers, catering, and funeral notices are also not usually included in the insurance cover. You may therefore wish to set up a separate savings fund if you also want to cover these additional costs in advance.
How much does funeral insurance cost?
You can expect a prepaid funeral plan to cost between £3,000 and £5,000, which you’ll pay in a lump sum or instalments. The monthly cost can be anything upwards of around £10, depending on how quickly you’re paying it off.
Funeral insurance companies may gradually increase premiums if you’re spreading the cost. Because the plan is designed to protect you against the rising costs of funerals, they may want you to pay in more each year to keep up with inflation.
Is funeral insurance worth it?
Funeral insurance can give you peace of mind that your loved ones won’t be left with a hefty funeral bill they can’t afford. However, it may not necessarily be the best way to fund your funeral in advance. Here are the main pros and cons.
Advantages of funeral insurance
- Inflation protected – even if funeral expenses have risen by the time you die, your family won’t need to pay the difference.
- Free from inheritance tax – because it is an insurance policy, the claim won’t count as part of your estate. It shouldn’t be included in a care home assessment, either.
- Helps with cash flow – while your family is going through the probate process and waiting for distributions from your estate, the plan can cover the payment needed for your funeral, which may be soon after your death.
- No waiting period – you don’t usually need to reach a threshold before you’re covered (but do check the policy wording).
- Could save you money – the cost of funerals differs by region, but plans are based on national prices, meaning you could pay less for a funeral if you live in an expensive area.
Disadvantages of funeral insurance
- Not everything is covered – your family may need to pay more for certain services that you or they would like.
- Non-refundable – you may not get back the money you’ve paid in if you cancel your plan.
- Restricted options – your plan is usually agreed based on using specific funeral directors, limiting your family’s choice. And if the director is in high demand, they may have to wait for the funeral.
- You might end up paying more for your funeral – if funerals are cheap in your area or the cost of funerals goes down, your plan might be more expensive than it needs to be.
- Your money isn’t protected – the FCA doesn’t regulate funeral plans, so you haven’t got protection if your provider lets you down, though this is set to change soon.
Life insurance vs funeral insurance – which is better?
Both life insurance and funeral insurance are offered with no medical assessment and can be used to cover funeral expenses. If you opt for life insurance, it’s usually in the form of over 50s cover. It may have a funeral assignment, which allocates a portion of the sum assured (pay out) for the funeral.
With over 50s cover, you benefit from having more freedom over how and where the funeral takes place. It’s simply a lump sum that a beneficiary can choose how to spend. They could also use the payment to cover other fees. The downside is that the plan isn’t inflation protected, so if the cost of funerals goes up, your family will need to cover the difference.
Talk to a financial adviser about setting up life insurance and see if you can get a better deal than you would obtain from a funeral plan.
What other alternatives are there to funeral insurance?
Taking out insurance isn’t the only way to pay for a funeral. You could set up a savings account, but it won’t be inflation protected, and it will count towards inheritance tax calculations.
If your family already receives certain benefits, they may be able to get the Funeral Expenses Payment to cover some basic costs. Or if you die when you’re under the state pension age, and you’ve made enough National Insurance contributions, your spouse or civil partner may get the Bereavement Support Payment, which they can use to pay for the funeral if they choose. Planning for your future by relying on state benefits may be a risky strategy because they are subject to change, and you may become ineligible. So it’s worth investigating other routes.
How to get the best funeral insurance quote
Finding the best quote for funeral insurance is simply a case of shopping around to compare quotes from different companies. Look at what is and isn’t included, and what options you and your family will have. For example, you’ll need to find out if you can transfer the policy to a new location if you move home. A broker can help you with weighing up the different options.
One key disadvantage of both funeral and over 50s cover is that they take a cookie cutter approach, meaning there isn’t much flexibility to adjust the plan to suit your needs. You could be better off working with an IFA to design a plan with the right insurance, savings and tax wrapper products to pay out for different eventualities. That way, you don’t need to worry about funeral costs, but you also know you’ve got the right plan based on your circumstances – and for when they change.
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