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The cost of funerals has increased dramatically over recent years, leading to the rising popularity of prepaid funeral plans. A funeral plan can be a sensible decision as part of your end of life planning. This guide outlines the benefits of a funeral plan, as well as the different options that you can consider.

What is a funeral plan?

A funeral plan is one way to plan ahead and pay for your funeral before you pass away. It allows you the peace of mind that there are no unexpected costs for your family and friends to handle following your death. By taking out a funeral plan, you can be sure that your funeral will be exactly as you wish. At the same time, you can remove the burden of planning the funeral from your loved ones.

Before you take out a funeral plan, you need to be aware of what exactly the plan covers and whether there are any exclusions before you commit to a plan. A funeral plan is not always the best option for everyone, so consider both the pros and cons to determine if a plan is right for you.

Is a funeral plan worthwhile?

Depending on your financial circumstances, a funeral plan can be a helpful option. It allows you to plan your funeral as you wish and takes away the financial pressure on your family in the future. If you have the available cash now, funeral plans can save you a significant amount of money as you will commit to a fixed cost plan. This protects you from any funeral price rises and inflation. At the same time, beware that there may be exclusions which fall outside of the plan. Additional fees may later be required, so take the time to read the small print on any plan.

If you’re expecting an inheritance tax bill, it is helpful to know that once you’ve paid for a funeral plan in full, the cost of the plan falls outside your estate. This differs from any money in an account that you’ve set aside for funeral costs, which will form part of the estate.

Can I take out a funeral plan if I’m over 60 years old?

Life expectancy is steadily increasing and as a result, a wide range of providers offer funeral plans for over 60s. As you get older, the options available are likely to reduce however there are certain providers who may not specify an upper age limit. If you’re specifically taking out a funeral plan for over 70s or 80s, remember to specify your wishes in case you do not complete the payment plan before you pass away.

Funeral plans: Pros

Whether or not a funeral plan is the best decision for you will depend on a number of factors. Here are the main advantages to using a prepaid plan to pay for your funeral:

  • It can reduce the cost burden for your family

One of the main reasons that people choose a prepaid funeral plan is it means that the cost of your funeral is already covered. A funeral plan removes the financial burden which many families face at an emotionally challenging time.

  • It avoids overpaying for a funeral in panic

By prepaying for your funeral costs, you can take the time to review the available options. Having a plan can allow families to avoid the panic that many experience when they are in a rush to organise a funeral at a difficult time.

  • A prepaid funeral can save money

The costs of funerals can vary widely depending on where you live or plan to have your funeral. The good news is that there are some national funeral plan providers that price their plans consistently across the country. This means that if you move to a more expensive location in later life, you may be able to save money by paying for a funeral plan ahead of time.

  • Prepaid funeral plans fall outside inheritance tax calculations

If your estate is likely to be liable for inheritance tax, you can reduce the tax bill by purchasing a funeral plan in advance. If you leave funds in a bank account, even if designated for the funeral, they will count towards your estate and be liable for inheritance tax.

  • Not all funeral plans have an age limit

A number of providers offer funeral plans which have no upper age limit, allowing you the freedom to take out a plan no matter how old you are. If you’re later on in life, funeral plans for over 80s can give you the opportunity to make your own arrangements and have peace of mind that any future funeral costs are taken care of.

Funeral plans: Cons

Before you commit to a prepaid funeral plan, it is worthwhile to consider the disadvantages of opting for a funeral plan:

  • A prepaid plan may cost more

As with any advanced payment option, the price can fluctuate both ways. If the price of funerals does decrease during the term of the prepaid plan, then you may end up overpaying by using a funeral plan option.

  • You can end up paying for protection you don’t need

Depending on your stage of life, opting for a funeral plan can result in paying for protection from funeral price rises and inflation which you don’t need. 

  • There may be date and time restrictions

Certain funeral plans may put restrictions on the options when it comes to the time and date of your funeral. This can reduce the options available for your family to choose from and may result in a longer wait for the funeral than expected.

  • You’ll be spending the money now

It might sound obvious, but if you commit to paying for a prepaid funeral plan, you’ll reduce the pot of cash that you have available to spend now. If you need the money more immediately then an additional expense may not be the best option.

  • Your money isn’t protected in the same manner as regulated industries

The funeral plan market is not regulated, which means that your money isn’t protected when you pay a funeral plan provider. Despite this, every funeral plan provider is under a legal obligation to place the money for your funeral in an insurance policy or in a trust fund. This doesn’t fully protect your funeral if the provider goes bust, but it does give you more security that your money isn’t lost and can be to you.

How to compare funeral plans

The services included in a funeral plan will depend on your personal choices, in particular, whether you choose a cremation or burial plan. The cost of the plan will vary depending on which plan you opt for, and the selection of services that you choose to include. 

Burials are often far more expensive than cremations, and the price of a burial plot will usually not be included in the funeral plan. This is due to the variation in cost between burial plots, depending on your preferred burial location. If you do choose a burial, there are a number of options to explore which can save significant sums of money, such as a shared plot or a rural location. 

Before you purchase a funeral plan, take the time to consider what you wish to include. Make sure that the plan you choose includes all the additional costs that you might want.

What are the alternative options for funeral cover?

A funeral plan isn’t the only option available when it comes to making sure that you cover the cost of your funeral in advance. Funeral insurance, sometimes known as over 50’s insurance, provides a fixed lump sum on your death. Your family can use the fixed lump sum for any purpose, although the intention of the policy is often for the lump sum to pay for your funeral service.

What does funeral insurance cost?

The cost of both funeral plans and funeral insurance will depend largely on the type of funeral that you wish to cover, as well as whether you choose to have a burial or a cremation. 

There are likely to be exclusions within the policies, such as flower arrangements and any catering that you choose. Typically, excluded costs are those which are not carried out by the funeral director. Within the funeral director’s duties, be aware that if the funeral cover that you opt for doesn’t cover the funeral costs in full, your relatives will have to bridge the gap.

Life insurance vs funeral plan: which is right for me?

The difference between life insurance and a funeral plan isn’t always clear. The two products are, however, very different and it is important to consider which product best suits your requirements.

Over 50’s life insurance is an insurance product that provides a cash lump sum on your death, which can be used by your family to take care of funeral costs. A funeral plan directly pays for the funeral so that when the time comes, your family has minimal decisions to make. The funeral plan that you have chosen will be put into action as you have chosen. 

An over 50’s life insurance plan usually specifies the amount that you will receive as a lump sum, which means that over the course of the plan, inflation is likely to reduce the value of the plan. 

There is also the chance that you will pay more into the life insurance policy than the lump sum payment. This will depend on how long you live for, as well as whether you need to continue making premium payments until you pass away.

What happens if you can’t afford a funeral? 

If there isn’t enough money in your estate to pay for a funeral and you have no friends or family to arrange and fund the funeral, a Public Health funeral will usually take place. Typically, this is a cremation organised by the local authority which anyone may attend.

For people receiving benefits, there is also the option of applying for a government Funeral Payment to help cover the costs of a funeral. It is unlikely to cover the full cost of the funeral and must be repaid out of the deceased’s estate. It can, however, help pay for legal documentation and fees associated with the funeral.

27th August 2020