What are funeral plans and could they save you money?
A funeral plan is a way of paying for your funeral before you die, either in affordable instalments or with a single payment.
The main reason to buy one is to lock in the cost at today’s prices. The cost of a funeral is roughly doubling every ten years, and is increasing at over twice the rate of inflation.
For example, if you buy a plan three years before you die and the cost of your funeral is average, then you might save over £1,000 compared to paying for the funeral at the time of your death.
By spreading the cost over time, what can be a relatively large expense can be made affordable.
However, having one is not just about money. It allows you to plan your funeral yourself, often with the funeral director who will arrange it. That may be easier for your family, who otherwise would have to plan the funeral at an already difficult time and possibly pay for it.
The expenses of a funeral are the first unsecured debt to be repaid from the estate (in preference to gifts). However, the estate may not have enough money in it to afford the funeral, which could leave family members out of pocket.
Because the funeral costs are prepaid when a funeral plan has been bought, there is no need for any individual person to pay on your estate’s behalf, and then have to wait to be repaid from the estate later.
In other words, a funeral plan gives you peace of mind that you will have the funeral you want, without burdening your loved ones.
Are funeral plans regulated?
Funeral plan providers are not regulated by the Financial Conduct Authority (FCA) nor protected by the Financial Services Compensation Scheme (FSCS). That is because they are not classed as investment products in the same way that financial products such as bank accounts are.
However, many plan providers recognise that regulation might be on the way, and therefore invest client money in accordance with the Financial Services and Markets Act 2000 and market their products in line with FCA requirements.
Additionally, a number of high profile plan providers have formed an association called the Funeral Planning Authority (FPA). To become a member, a provider must demonstrate that it can operate under the association’s code of practice.
One of the primary aims of the code is to safeguard client money. Rules include that all payments made by customers must be placed into an independently managed trust fund or into a whole of life insurance policy; and that members must have their finances and investment procedures reviewed by the association.
The FPA states that it will try and cover the cost of customers’ funeral plans if a member goes broke, but it does not guarantee to do so.
Other providers work with the National Federation of Funeral Directors (NFFD). Being a member of this association does not provide any more legal protection for money in a funeral plan.
One way of gaining peace of mind that your money is safe is to make some of the payments using a credit card. If you don’t buy the entire plan upfront, you would still be protected under the Consumer Credit Act if you made a first payment of at least £100 using a credit card, then the rest by regular instalment from your bank account.
Should you buy from a funeral plan provider or a funeral director?
You can buy a funeral plan either direct from a funeral director, or from a specialist plan provider.
The advantage of buying from a provider rather than an individual business is that a provider has arrangements with many directors. This may be useful if you move to a new area (such as moving into a care home) that an individual funeral director does not cover, and means that your funeral is more likely to be carried out quickly after your death. It also is likely to be less financially risky (see below).
An individual funeral director business may be able to provide a more personalised funeral with aspects that funeral plan providers would treat as extras, included in the price.
What if a funeral director goes out of business?
If you have bought a plan through a funeral plan provider, if an individual director in the network goes out of business, the provider will be able to refer you to another director within their network.
If you buy a plan directly from a funeral director, you may not be able to transfer the plan to another easily to another director. The combination of services that you have bought may not be available, or available at the same price. A plan provider will have agreed set packages of services with each director in their network so that each customer receives a standardised service.
Most funeral plan providers ring-fence client money so that if their business fails, client money cannot be claimed by their creditors (and definitely if they are members of the FPA). Unless they are acting irregularly, the prepaid amount should be placed in an independently managed fund.
Is a funeral plan good value?
Because of the rate at which funeral costs are rising, buying a plan now is likely to save money in the long run.
However, you do need to be aware of certain things.
What is included in your funeral plan will differ between plan providers and plans. A cheaper plan is likely to cover basic funeral costs without additional extras. More expensive plans will cover more, but most likely up to a certain amount. Burial plots are a good example of something that may not be covered in full. Other items will not be covered by any plan, for example, the cost of live music.
Plans can be complex, so after comparing online, examine each policy carefully and talk to the provider about exactly what is and isn’t included.
What happens if you die before you have finished paying for your funeral plan?
It depends on the terms of your plan. Usually, if you die before a plan has been paid for, either the family pays the outstanding (depending on the price agreed), or the money paid to date goes towards the amount.
To lock in the costs of your funeral, you really need to make sure you have repaid the plan price before you die.
Alternatives to funeral plans
Saving money in a savings account or ISA
The advantages of setting up a savings account or ISA and paying into it regularly are that if the money is needed for another reason while you are still alive, it is accessible; and that it is protected by law if the bank goes out of business.
The disadvantages are that savings rates are lower than the rate of inflation by which the cost of funerals are rising. In other words, if you put £5,000 into an account today to pay for a funeral costing that amount today, it would be likely not to buy the same funeral next year, unless you found a savings account that offered a very high rate of interest (such as one that locks in the money for a number of years).
Taking out life insurance that covers funeral costs
Over-50s life insurance plans pay a lump sum when you die. That amount could contribute to cover funeral costs.
It could also provide money for other purposes.
However, often you have to agree to make regular (usually monthly) payments for the rest of your life. The payout is fixed, so if you live for a long time, you can pay much more into the plan than you will receive out of it.
Additionally, because this is an insurance scheme, other conditions might apply. For example, the premiums you pay are not savings, so they cannot be paid back under any circumstances (except perhaps if you die just after you have signed up to a scheme). There may be fees to cancel early. If you miss a payment, your plan is likely to be cancelled.
Some insurance plans link the amount received on your death to inflation, so that the payout keeps pace with living costs. Others only require you to pay in until you reach a certain age.
Premiums may be more expensive if you have pre-existing medical conditions. There are schemes that don’t require medical screening.
Tips for saving money on funeral plans
The main cost in a funeral is the cremation or burial, and not the service. If you buy a basic plan that covers the essentials, you still lock in the advantage of today’s prices for the most costly piece, without paying more for things that might not be important to you, or which you can save for in other ways.
Whatever plan you do buy, make sure it is very affordable.
If you pay for a plan quickly, you will save on administration fees and interest – meaning more of your payment will go towards your funeral.
You’ll be less likely to need to cancel it, so you will be less at risk of forfeiting money you have paid to date, or paying cancellation fees.
Pay at least £100 of the first payment on credit card so as to obtain protection under consumer law.
Save for the things that matter most for you separately, such as flowers.
There are also ways of reducing the cost of a funeral more generally.
There is plenty more information on this site about writing your own will, planning for a funeral and carrying out probate.
If you haven't yet made your will, we encourage you to do so. We believe that it is one of the most important legal documents we make as individuals. To help, we provide some of our simpler last will and testament templates absolutely free with no catches or conditions. If you need any help, you can just ask.