How does a funeral plan work?
At its simplest, a funeral plan allows you to pay upfront for your funeral so your relatives don’t have to cover the costs themselves - although they are allowed to pay for your funeral using money from your estate as soon as you die (and it's not subject to inheritance tax).
A funeral plan will not include everything you need for a funeral. Exactly what is covered will vary from provider to provider.
Funeral plans may cover viewings of the deceased, a limousine procession and a church service, but burial plots are often left out. Other costs, not traditionally met by a funeral director, are also not included, such as the cost of flowers.
In addition, some costs may not be met fully, and your family may have to pay the rest. For example, many providers only contribute towards the cost of cremation or burial. As always, check the details to make sure you know exactly what you are buying.
Age Concern and Dignity guarantee the price of cremation, but only pay a contribution towards burial costs. Golden Leaves, on the other hand, has a set contribution to burial or cremation costs.
The Co-operative guarantee to cover all costs for a burial or a cremation. However, the cost of a burial plot is not included.
How much does a funeral plan cost?
You can buy a funeral plan from either a funeral-plan provider or directly from a funeral director.
You have the choice of either paying a lump sum or monthly instalments, usually over one to ten years. One-off payments usually range between £3,000 and £5,000.
You can find out much more about the costs of individual funeral plans in our funeral plans reviews.
Is my money safe in a funeral plan?
To safeguard your plan, your provider will either place it in a trust fund or invest it in an insurance policy that pays out when you die.
The Financial Conduct Authority doesn’t directly regulate funeral plans, but it does have rules to safeguard your money if it is placed in a trust or invested in an insurance policy.
There is a professional body for providers called the Funeral Planning Authority (FPA), which has a code of conduct that all of its members must comply with.
As part of the code, the FPA’s members and the FPA itself pledge that if a provider goes bust they will look into paying for funerals that are covered by funeral plans.
You may also be protected under Section 75 of the Consumer Credit Act 1974.
Under the Act, a credit card provider must protect purchases over £100 if there is a problem with good and services you have paid for, or if the company you are buying from goes bust.
If you are paying for your funeral plan in total upfront, you can benefit from Section 75 protection by putting part of the bill on your credit card.
If you want to pay by monthly instalments you can also gain protection by using the a credit card to pay any deposits or asking your provider to pay part of the bill upfront using the card.
What are the alternatives to a funeral plan?
A funeral plan is one way of ensuring your family doesn’t have to shell out thousands of pounds after you’re gone. But do you need to buy one? And what are the alternatives?
Could I save for my funeral without having a plan?
A funeral plan is not the only way to meet the costs of a funeral – a life insurance policy, money from your estate and traditional savings accounts could all be possible solutions.
Over-50s life insurance
An over-50s insurance plan pays out a fixed lump sum to your family when you die, but these plans do have some drawbacks.
The payout does not increase with inflation, meaning that you could end up paying more in premiums than you can claim.
For example, buying a £10-a-month policy with Aviva at age 50 would pay out £2,767 but, by the age of 73, you would have already have paid this much in premiums.
However, the product is offered without medical screening, making it potentially useful for those who can’t afford standard life insurance because of medical conditions.
A savings account has the advantage of growing your money with interest. However, the rising cost of funerals would mean that you may not earn enough interest to keep up with the surge.
According to life and pensions specialist Royal London, the average cost of a funeral increased by 4% in 2015 and stands at around £3,700.
To make sure that relatives can access the savings after your death, set the account up in a joint name with a trusted family member.
Paying from your estate
Funeral costs can also be paid from your estate after you die. Banks will normally release funds if they’re presented with an itemised bill from a funeral director and a copy of the death certificate.
Buying a funeral plan: a step-by-step guide
If funeral plans are for you, following our tips will help you make sure you get the right one to suit your needs.
1. Consider how your family would cope financially when you die
Funeral plans are designed to help meet the cost of the funeral when you’re gone, so think carefully about your family’s finances. If your estate could cover the cost of a funeral, even with the likely increases, or your family has the money, a basic plan – or even no plan at all – might be the best option.
2. Find a number of policies quickly by using a comparison site
A comparison site is a good way of taking the legwork out of finding a number of suitable plans. Over 50s Choices and FuneralPlanMarket.com, for example, compare many of the big providers, so are a good starting point. Remember, however, that funeral plans can be complex so you should examine the policy carefully and phone the provider if you are unsure about any of the details.
3. Check out our cost breakdown for funeral-plan providers
Funeral plans can differ wildly, so check out the costs of funeral plans for a breakdown of what is covered by the major providers.
Our table only lists provider that are members of the Funeral Planning Authority.
Each of our providers in our table cover the cost of a hearse, care of the body and arrangement and supervision of the event by a funeral director.
Find out more: The costs of funeral plans
4. Pay for your policy as quickly as you can
Like many other financial products, such as car and home insurance, funeral plan providers give you the option of paying either in instalments or in a lump sum.
Most providers give you the option to pay over 12 months to 120 months. Paying in instalments for a long time will cost more because of administration fees and interest.
While 12 monthly payments may cost roughly the same, paying over 60 months, for example, can add around 15%-26% to the overall cost.
5. Read your documents carefully
While funeral plans cover much of the cost of funerals, there are many items that are exclude, such as headstones and burial plots. Some costs are also capped, such as burial and cremation costs.
Read the documents carefully to make sure you understand the plan fully – as well as its limitations – before you buy.