Funeral plans - are they worth it?
Funerals are expensive, costing between £3,000 and £5,000 for the typical service in the UK. For some years, funeral plans have been marketed as a popular way to cover these costs in advance, so that relatives are not landed suddenly with an unexpected bill. However, although there are some potential advantages to a funeral plan, they are generally not the most cost-effective way to save for a funeral, and may also come with many risks.
What is a funeral plan?
A funeral plan is a type of finance scheme that pays out on the holder’s death to cover some or all of the costs of the funeral. You can take out a plan to pay for your own funeral or to someone else’s. Both funeral directors and plan providers offer these schemes.
The main advantage of a funeral plan, in theory, is that it allows you to pay for the funeral at today’s prices. So if funeral prices rise steeply in the future, your family could save money.
However, this advantage may be outweighed by some of the drawbacks and risks.
How much do funeral plans cost?
The costs vary from provider to provider, and also depending on the kind of services included in the plan. If you pay in a lump sum, you can expect to pay between £3,000 and £5,000, while monthly instalments can vary from £15 to £100 depending on how old you are and what you would like included. Bear in mind that paying in instalments may mean a higher price overall, potentially cancelling out any cost benefit over time.
What is covered in the plans?
You probably won’t be able to get everything you need for a funeral covered in a plan, but you can usually choose a package that pays towards some basic arrangements, such as the burial or cremation, a limousine for the close family members or friends, and the service. Burial plots often aren’t included, and it’s likely that you’ll have to pay extra to get the exact service you want. Anything not organised by the funeral director, such as the gathering afterwards and flowers, probably won’t be covered by the plan either. It’s important to read the plan details closely to understand exactly what’s included before taking one out.
What are the risks of taking out a funeral plan?
The Financial Conduct Authority (FCA) doesn’t currently regulate funeral plans, so at present there are no guarantees that you will get your money back or that the company will pay out if it goes bust. Although some companies are registered on the Funeral Planning Authority and must follow a code of conduct, the rules only stipulate that they must look into paying out for funerals if they go bust – which is still not the same as a guarantee.
The provider itself will also take a chunk of the plan cost for commission. It means that even though you have paid in a few thousand pounds, the amount that goes towards the funeral could be considerably less.
The other risk is that you might not be able to get the money back if your circumstances change – for example, if you set up the plan to pay for a partner’s funeral and you later separate, or if you simply want to change the details of your funeral arrangements. Some plans will only allow you to use certain funeral directors and you may be limited as to the kind of service you want. It’s also important to bear in mind that there may be outstanding instalments for your family to pay at the time of your death.
What are the alternatives to funeral plans?
Over 50s life cover is an insurance policy that pays out a fixed sum for a funeral when someone dies, but they’re not generally recommended because they aren’t cost-effective. It’s likely that you will end up paying more in the premium than you get back. Your policy will also become invalid if you miss even a single payment, meaning it won’t pay out when you die (even if you’ve already paid in more than the fixed sum would be!).
By far the best alternative to a funeral plan is also the simplest: just save up a fund for covering funeral costs. A regular savings account is probably best for this, being easily accessible and in cash form (so its value won’t fluctuate except with inflation). If it is in your own name, instruct your solicitor that it is to be used for your funeral costs, and put this in your will too. You could also open the account in the name of a family member, so they can access it even more quickly. To ensure that the money is used for your funeral, you could consider putting it into a trust instead.
Another option is to pay for the funeral out of your estate when you die. It’s possible to claim back funeral expenses (which can also reduce the inheritance tax bill, if there is one). Speak to a financial adviser about the best solution for your particular circumstances.