What Are Funeral Plans and Are They Worth It?
Arranging and paying for your funeral ahead of time with a funeral plan can reduce the financial impact on your loved ones and take care of the details. Here’s what to consider, and how regulation of the market is changing.
With the average basic funeral costing over £4,000 according to the SunLife Cost of Dying Report 2021, you may be looking to arrange and pay for your funeral in advance to reduce the financial impact on your family. Taking care of the decision-making about your send-off will also make things easier for loved ones when you’re gone.
The cost of funerals has risen considerably in recent years. One of the advantages of a funeral plan is that it can protect you from the effects of inflation and future price rises.
But it’s important to read the small print of the plan, and make sure you’re clear about what is and isn’t included. Look out for limits on third-party costs which could result in a shortfall, and bear in mind that most plans won’t include the cost of a wake or a memorial.
Here’s how funeral plans work and what to consider if you’re thinking of buying one.
What are funeral plans?
Funeral plans are packages that include specific funeral services that you pay for in advance. So when the time comes, your family won’t have to foot the bill for those services or decide on the details of your funeral at what will be a difficult time. You also pay today’s prices for the services included in the plan, which can be reassuring, considering the rising cost of funerals.
You can buy a prepaid funeral plan from a funeral plan provider or a funeral director, or through an intermediary. There is usually a tiered approach, with basic, mid-range and more premium options to choose from. The level of plan will determine the cost and how extensive the services are.
You can buy a funeral plan for yourself or for someone else, such as a parent. Some providers also offer joint funeral plans, which can be used when the first partner passes away.
How funeral plans work
When you take out a funeral plan, you can pay for it upfront in one lump sum, or by instalments over a period of time. Some providers allow the cost to be spread over as much as 30 years, if payments will be completed by the time you reach a maximum age limit. Be clear about how much it will cost you in total, if you’re spreading payment over more than 12 months and will be charged interest.
Your money is held in a trust or is paid into an insurance policy. When you pass away, your family will need to tell the provider. The funeral will then be scheduled and carried out and paid for by the money set aside.
It makes sense to tell your family that you have a funeral plan or that you're thinking about taking one out. Explain what it includes, and which provider it’s with. As much as nobody likes discussing death, you won’t be around to tell them it exists when the time comes.
If you are unsure if a loved one had a funeral plan, there is a free funeral plan tracing service provided by the Funeral Planning Authority (FPA). This helps find plans from providers registered with them.
What does a funeral plan include?
This is an important question, as there will be upper limits and exclusions, and the provider won’t always guarantee covering the cost of the whole funeral. What’s more, a basic plan won’t be the same across providers.
But it might help to know that a basic funeral plan will typically include:
- Funeral director services, including taking care of the body and managing the logistics of the funeral, including transport.
- A contribution towards third-party fees, sometimes called disbursements, such as doctor’s fees, minister or celebrant fees, and the cost of the cremation or burial.
- The cost of a basic coffin.
- A family viewing in a chapel of rest.
- A hearse to transport the person who has died.
- A limited choice of funeral timeslots.
The more premium plans may offer limousines for mourners and a higher contribution or a guarantee to cover specific third-party costs. There may also be a more flexible choice of date, time and location for the funeral and a more premium coffin.
If you would prefer a direct cremation, there are plans available. It’s a simple unattended funeral without a service that doesn’t include features such as viewings in a chapel of rest. This tends to be the lowest-cost option.
It’s important to be clear about what is included in your funeral plan and what isn’t, and what will cost extra. Check the key features document and terms and conditions carefully, and ask the provider if you’re unsure about anything, such as if you can make changes to the plan later or choose the funeral director you’d prefer.
Don't feel pressured into the purchase, or respond to cold calls. Take your time to make sure the funeral plan is affordable and suitable for you and your loved ones.
What doesn’t a funeral plan include?
The exclusions of a funeral plan will often depend on the level of plan. For a basic plan, there may be no option for transporting mourners to the service, while a premium plan may offer a few limousines and extras such as thank you cards.
Whatever level of plan you choose, you won’t usually find the following fully covered, or covered at all:
- embalming and the cost of a burial plot
- orders of service
- newspaper notices
- a memorial
- a wake
You may be able to personalise your plan by paying more to cover the cost of these extras, but it depends on the provider and, again, the level of plan.
Some plans don’t guarantee that third-party costs will be covered in full. So even if the amount allocated to these costs is protected from the effects of inflation, if prices for third-party services exceed that allowance, your family may need to make up the shortfall.
How much does a funeral plan cost?
The amount you pay depends on the level of plan and how you choose to pay for it, as well as the provider. If you pay in one lump sum, a prepaid funeral plan can cost anything from just under £1,500 for a direct cremation to over £4,000 for a more premium plan.
Paying in one lump sum or spreading the cost over no more than 12 months is usually the most cost-effective option. But what’s right for you depends on what is affordable and the services you want included, as well as the provider you would prefer to use.
If you pass away before paying the total instalments due, the provider will usually ask your family to pay what is outstanding. If you have an insurance-backed plan, your family won’t be asked to pay the remainder. Though if you haven’t had the plan for more than the minimum period, usually a couple of years, and pass away in that time, the provider will return the amount that has been paid into the insurance policy.
Are funeral plans worth it?
Making provision for your funeral is an important part of an estate plan, especially as a funeral can cost thousands of pounds. Over 1.5 million plans are currently active and undrawn in the UK according to the FPA, but funeral plans aren’t right for everyone. To consider if it’s worth it for you, here are the main prepaid funeral plans pros and cons:
Benefits of a funeral plan
- You pay today’s prices for future services, as you’re effectively freezing the price of the main services of a funeral.
- Your loved ones won’t need to find the money for your funeral before they are able to access money from your estate, as the services included will already be paid for.
- You’ll be securing the send-off you would prefer, including music and location, and saving your family from making decisions when they’re dealing with a bereavement.
Drawbacks of a funeral plan
- There’s no guarantee that the total cost of the funeral will be covered.
- Extras, such as flowers, a headstone or a wake aren't usually included.
- If funeral prices go down in the future, you may be paying more than the going rate.
- If you pay in instalments for a few years, you will pay interest on what you owe.
Are funeral plans regulated?
Funeral plans aren’t regulated, but providers that are members of the FPA have to follow guidelines and a code of conduct. You can check that a provider is a member of the FPA on its website.
But things are set to change. The Financial Conduct Authority (FCA) will regulate funeral plan providers and intermediaries from July 2022, when they will need to apply for FCA authorisation. If they are not authorised, they must leave the market.
The FCA has criticised funeral plan providers for lack of transparency with how funds are kept, unfair pricing and unscrupulous sales tactics. Most important among the new rules, perhaps, is banning the sale of plans that don’t guarantee a funeral after the plan holder dies.
What are the alternatives to funeral plans?
Before you take out a funeral plan, it makes sense to consider the alternatives.
An over-50s life insurance policy is whole-of-life cover with a guaranteed lump sum payout that your family could use towards funeral costs. You pay a fixed monthly premium and don’t need to have a medical to be accepted. However, the lump sum won’t usually be protected from the effects of inflation, and you could end up paying in more than will be paid out. A lump sum payout from a term life insurance policy may also be used towards the cost of a funeral.
Setting money aside in a savings account or ISA to help pay for your funeral is another option, though you won’t benefit from the frozen prices of a funeral plan, and it’s up to you to pay in enough to cover a funeral. But you will have more choice over how much you pay in and when.
Otherwise, the funeral can be paid for out of your estate, if you think there will be enough to cover it. Consider if your family would be able to afford to pay the funeral bill before your estate can be distributed. Banks may release money from an account for a funeral early to cover the cost.
You can state your preferences for your funeral when you make your will, to help guide your family.
Whatever you decide, talk to your family and explain your wishes, and let them know where you keep the paperwork they will need when the time comes.
Image source: Getty Images
Holly champions clear, jargon-free writing. She’s been creating finance content for leading organisations for over 10 years. Read more