If you’re worried about the cost of a funeral, you can buy a pre-paid funeral plan. But are prepaid funeral plans worth it? Here’s what to look for in a funeral plan.
Are prepaid funeral plans worth it?
There are dozens of different prepaid funeral plans on the market from a number of different providers and they have become more popular in recent years. Figures show that over 200,000 prepaid funeral plans were sold in 2017 and there are 1.3 million plans in existence where a claim hasn’t yet been made. It’s really important that you know the difference between the different types of funeral plans or you could get caught out.
Broadly, they split into:
- Prepaid funeral plans. You can pay for your funeral via prepaid funeral plans as a one-off cost or in instalments and you can normally choose from a basic plan to something more expensive. Their selling point is that you can pay for your funeral at today’s prices. However, funeral plans don’t cover all the costs and you may be limited in terms of the funeral director you can use.
SAVVY TIP: Prepaid funeral plans like this aren’t regulated by the Financial Conduct Authority, which means you can’t complain for free to the Financial Ombudsman Service if there’s a problem (although this may change – see the bottom of the article). However there are rules in place to protect customers’ money and most providers are registered with the Funeral Planning Authority, a self regulatory organisation.
- Over 50s life insurance. These policies aren’t only designed to pay funeral costs although some of them are marketed that way. Here you pay monthly premiums for the rest of your life – or until the age of 90, whichever is sooner – and the plan pays out a fixed amount when you die which is set at the outset. The main difference with over 50s policies compared to ordinary life insurance is that with an over 50s policy you don’t have to have a medical. You also won’t be refused cover – even if you’re in your 60s or 70s. However, there may be an upper age limit of 80 or 85 after which you can’t take out the policy.
SAVVY TIP: These policies are regulated by the Financial Conduct Authority which means you can complain to the Financial Ombudsman Service if you have a problem or think you were mis-sold. They’re often marketed on the basis that you don’t need a medical to be accepted.
What to look for in a funeral plan
If you’re buying a prepaid funeral plan (as opposed to life insurance), there are several things you should be clear about before you sign up.
1. Check that the provider is registered with the Funeral Planning Authority. If it isn’t, find one that is.
SAVVY TIP: Although the FPA is a self regulatory organisation, it should give you some safeguards. If the plan provider goes bust, other companies that are members of the FPA will try and step in and make sure that the funeral costs are covered. However, this isn’t a guarantee – it’s an aim.
2. Find out what the plan covers. Different funeral plans offer different levels of cover. The marketing blurb may talk about ‘peace of mind’ but most don’t guarantee to meet all costs.
SAVVY TIP: The costs that are least likely to be covered include so-called ‘disbursements’, such as fees for the church service. Most providers only cover a set level of benefit for burial costs (rising by inflation every year) there are one or two exceptions which say they will cover all burial or cremation costs.
What to look for in a 50+ life insurance policy
Another option for covering your funeral costs is to take out a life insurance policy aimed at people aged 50+. Be warned that these policies are very inflexible in that they’re designed to run for the rest of your life. This is how they work:
- You normally pay a fixed monthly premium until you die or reach your 90th birthday. You choose how much you’d like to pay each month.
SAVVY TIP: The amount you get varies between providers – sometimes by quite a lot.
- You don’t normally get anything back if you cancel. This is important because it means you don’t get any refund of premiums if you change your mind or have to cancel because you can’t afford to continue the payments. Some insurers say you don’t have to make your monthly payments once you reach 90 – but the policy still continues. Other will pay out a limited amount if you stop your premiums. Check with the company before you sign up.
SAVVY TIP: If you die within two years of taking the policy out, you normally get back your premiums plus an extra payment.
- These policies can be very expensive. If, for example, you take out an over 50s policy when you’re 55 years old and you pay £10 a month. After 30 years you’ll have paid £3,600 in premiums. However, the over 50s policy will typically only pay out between £2,500 and £2,900. The exact amount you’d get varies between the different companies.
Who offers prepaid funeral plans?
There’s a range of companies that offer prepaid funeral plans. The biggest names include:
- Age UK Funeral Plans
- Choice Funeral Plans
- Co-op Funeral Plans
- Dignity Funeral Plans
- Golden Charter
- Perfect Choice Funeral Plans
- Post Office Money Funeral Plans
Questions to ask before you take out a funeral plan
Whether you decide to take out a funeral plan or prefer to save for your funeral is largely down to personal choice, but here are some questions that might help you decide whether or not you’re being offered good value for money.
Steps to take before you buy a funeral plan:
- Check what the funeral plan will pay for: ask what’s guaranteed to be covered and what isn’t. Ask whether all burial or cremation costs are covered (burial costs aren’t normally covered in full) and if not how much will be paid towards the funeral.
SAVVY TIP: Many plans only increase the amount they’ll pay by RPI – the retail prices index. This is a measure of inflation but it will not necessarily protect you against price rises. For example, the cost of funerals can rise by much more than this. This could mean your relatives have to pay the shortfall.
- Find out how you’ll pay and whether you’ll be charged interest on instalments. You can normally pay for the funeral plan in one lump sum or instalments. The longer the period of time you spread the payments, the higher the cost, due to the interest that’s charged.
- Ask if you can choose your own funeral director? Some plans tie you to a network of funeral directors while others don’t.
- Find out if you can you cancel and what penalty would you have to pay. Cancellation fees vary widely and can run to several hundred pounds or more.
How much does a prepaid funeral plan cost?
The costs of a prepaid funeral plan varies according to how much you want to spend on the funeral, the provider you buy the plan from and whether you pay in one lump sum or spread the payments over several years. Be aware that the interest charges can add up.
The easiest way to illustrate it is with an example from one of the major funeral plan providers (Co-op Funeral Plans). To get an idea of costs, I compared the cost of a basic and more expensive funeral plan. I chose Co-op Funeral Plan because it was easy to compare costs – I’m not endorsing their plan or saying it’s the best value.
- A simple funeral plan for a cremation or burial: Basic cost £2,850. If I paid for the funeral plan in one go, or within 12 months, it would cost £2,850. If I chose to pay for it over 20 years, it would cost just under £20 a month, but I’d have paid almost £4,800 (£4,717.80) for the funeral plan by the end of it. This figure includes the interest. If I’d paid for it over five years, the monthly payments would be £53.50 and it would cost £3,212. The prices I’ve quoted are for buying it online. It’s £2,995 if you buy it over the phone or at home and pay in one go.
- Silver funeral plan for a cremation or burial. Basic cost: £3,650. If I paid for the funeral plan in one go, or within 12 months, it would cost £3,650. If I chose to pay for it over 20 years, it would cost just under £25 a month, but I’d have paid almost £6,000 (£5,947.80) for the funeral plan by the end of it. This figure includes the interest. If I’d paid for it over five years, the monthly payments would be £67.50 and it would cost £4,050.The prices I’ve quoted are for buying it online. It’s £3,750 if you buy it over the phone or at home and pay for it in one go.
Problems with funeral plans
There have been some problems with the way funeral plans have been sold or mis-sold. Research by Citizens Advice and Fairer Finance found that some people were being harassed, misled or put under pressure. Today (June 1st 2018) the Treasury announced that it will be consulting on bringing prepaid funeral plans under the regulation of the Financial Conduct Authority – in the same way that banks, pension providers and investment companies are regulated. The Treasury says that 95% of prepaid funeral plans are registered with the Funeral Planning Authority, but it’s not really an authority at all as its code of conduct isn’t legally binding.
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