It’s not something most of us want to dwell on, but making sure your funeral costs are covered could make a difficult time for those you leave behind a little bit easier.
Life insurance, and the lump sum it’s designed to pay out to beneficiaries if you die while the cover is in place, is one way to ensure your loved ones will be looked after financially once you’re gone. But can life insurance be used to cover your funeral costs and what are the other options you could consider?
Does life insurance cover funeral costs?
A life insurance payout can usually be used by your beneficiaries however they wish, including to cover your funeral costs. This means you could take out a life insurance policy that will pay out just enough to cover your funeral. Alternatively, you might want to ensure any payout will cover your mortgage or allow your family to live comfortably going forward, as well as covering the cost of your funeral.
Given the discretion beneficiaries tend to have, it’s important to make them aware if you specifically want some or all of a life cover payout to cover the cost of your funeral, so they have the opportunity to respect your wishes.
Keep in mind that a life insurance payout might come through in a matter of days or it might take a number of weeks. If making sure your loved ones have the funds available to arrange a funeral quickly is important to you, it’s worth checking whether a life insurance provider will release money towards funeral costs early.
» MORE: What are the benefits of life insurance?
Which types of life insurance can cover funeral costs?
Among the various types of life insurance that are available, the main options that could help to cover your funeral costs include:
Whole of life insurance
This type of policy covers your whole lifetime, meaning that as long as you’re up to date with your premiums, those you leave behind are guaranteed to receive a payout regardless of when you pass away. This certainty of a payout usually makes whole of life insurance more expensive than term life cover, which only pays out if you die during a certain period, and there’s a risk you could pay more in premiums than is paid out.
Over 50s life insurance
Over 50s plans are usually whole of life policies, which means they are also guaranteed to pay out when you die. The difference is you have to be over 50 to apply and you won’t be asked any health-related questions or need to undertake a medical examination to get cover. As a result, over 50s insurance tends to cost considerably more than other types of life cover. If you live a long time, the total you pay in premiums could also add up to more than the payout your beneficiaries eventually receive.
Term life insurance
Term life insurance provides cover that lasts for a set period of time or term, which tends to make it less expensive than whole of life insurance. It can be set up on a level term basis, where the payout remains the same during the term, or a decreasing term basis, where the payout will fall over time, often in line with the outstanding balance on a repayment mortgage.
The main consideration if you want term life insurance to cover your funeral costs is that no payout will be made if you were to die outside of the policy term.
Funeral benefit options
Some over 50s policies provide a funeral benefit option, which could provide an additional payment of perhaps around £250 towards the cost of your funeral. For this to happen, you’ll usually need to agree that the payout from your plan can be paid directly to a specific funeral director who will take charge of making the necessary arrangements when required.
What are my options to pay for a funeral without life insurance?
Before taking out life insurance to cover your funeral expenses, it’s a good idea to consider some of the alternative ways to pay for a funeral.
Not to be confused with funeral benefit, a funeral plan allows you to pay in advance for your funeral at the price it would cost when you die. This helps to protect your loved ones against any future rises in the cost of funerals, and ensures certain aspects of your send-off are already paid for. In committing to a certain funeral plan provider conducting your send-off when the time comes, you also get the chance to arrange the funeral that you want, and take away some of the difficult decisions loved ones might otherwise need to make over arrangements.
The main points to consider are that there could still be some parts of your funeral that are not covered by your plan, such as the headstone or wake, and that you might end up paying over the odds if funeral prices were to fall in the future.
» MORE: Funeral plans explained
If you want to make sure there is a specific pot of money available to help pay for your funeral, you could put money aside in a savings account for that very purpose.
Savings held solely in your name usually fall into your estate when you die, raising the possibility your loved ones won’t be able to access the funds in time to pay for your funeral. Some banks might be willing to release money early from a bank account to pay for a funeral if you can present a death certificate and funeral invoice. Alternatively, you might put savings for a funeral into a joint account with a loved one, which they’ll still be able to access once you’re gone.
However, one thing to bear in mind is that there is no guarantee what you save will be enough to cover your funeral, particularly if funeral costs rise.
Even if you don’t have savings put aside, you might still have other assets that could help pay for your funeral. Making sure there will be enough funds is key – if you die with any outstanding secured loans, such as your mortgage, the money from an estate is used to pay these off first.
Assuming there are funds left over, another consideration for loved ones is that they may need a way to pay for your funeral themselves if it takes a while for your estate to be distributed or an asset, such as your home, needs to be sold.
» MORE: Estate planning and passing on what you own when you die
Is it better to have life insurance or a funeral plan?
This will often depend on your circumstances and preferences but when comparing funeral plans and life insurance, some of the main differences to consider include:
|Life insurance||Funeral plans|
|Pays out a cash lump sum to beneficiaries if you die during the policy term||Prepays the cost of certain aspects of your funeral, but has no cash value|
|Beneficiaries can use a payout however they wish, whether to pay for your funeral or in other ways||Can only be used to cover funeral costs, and there is no cash payout to loved ones|
|You will be questioned about your health and lifestyle when applying and may need to undergo a medical; there is no guarantee you’ll be accepted||No health questions or medicals, so you are guaranteed acceptance regardless of your health|
|Premiums are payable throughout the policy term or until you die||Payments stop once you’ve paid the agreed amount for the plan|
|Premiums are usually payable monthly, or sometimes quarterly or annually||Option to pay in full up front or make regular payments|
|It can take from a few days to a few weeks to get a payout, so it may not come through in time if your loved ones would like to arrange a funeral quickly||As the plan is prepaid, you can contact the funeral director and make arrangements straight away|
Can I have life insurance and a funeral plan?
If you can afford to pay for both, there is nothing to stop you having life insurance and a funeral plan at the same time. The funeral plan will ensure your funeral is paid for, allowing your loved ones to use any life insurance payout as they see fit.
Should you get insurance for funerals?
There is no legal obligation to have life insurance, a funeral plan or any other arrangements in place to pay for your funeral.
However, if you haven’t made plans, it will fall on whoever organises your funeral to meet the costs. They might be able to claim these back from your estate at a later date, but if it isn’t large enough, or you want to try and make things a little easier for those you leave behind, life insurance could be worth considering.
How to compare life insurance
Whatever your reason for thinking about life insurance, our partnership with LifeSearch allows you to get quotes from a number of providers quickly.
Share a few personal details and LifeSearch can give you an idea of how much life cover might cost you. If you’re not sure where to begin, or have any questions, you can also discuss your individual circumstances with a LifeSearch adviser.
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