What are the pros and cons of prepaid funeral plans?

Many people in the UK have arranged and paid for their funeral in advance with a prepaid funeral plan.

Whilst there are many benefits to having a funeral plan in place, there are also some drawbacks to consider.

The main prepaid funeral plans pros and cons are as follows:

PROs of prepaid funeral plansCONs of prepaid funeral plans
Peace of mindTies up funds
Lock-in today's funeral pricesCan only be used to pay for your funeral
Arrange your funeral according to your wishesNot all funeral costs are covered
Flexible payment optionsMost plans can't be taken overseas
Doesn't form part of your estate (avoid/minimise 40% IHT)May not be worth it if death is close
Some plans pay out even if you die before completing all your paymentsNot yet regulated by the Financial Conduct Authority (FCA)
Guaranteed acceptance for UK residents (age restrictions may apply)
Regulated by the Funeral Planning Authority (FPA)


Below we look at each of these funeral plans pros and cons in greater detail.

At Reassured, we’re unable to compare quotes for the types of funeral plans discussed in this article.

However, we can help arrange an insurance policy which is designed to cover the cost of your funeral. Continue reading to learn more…

PRO: Peace of mind

One main pro of a prepaid funeral plan is peace of mind.

Planning a funeral is a difficult responsibility, particularly whilst coping with grief after losing a loved one.

Covering the cost is also an additional concern for many families. Finding the money to pay at short notice means delving into their own savings, using a credit card, or getting a loan[1].

A prepaid funeral plan is one way to ensure that everything is taken care of for your funeral ahead of time.

It can give you peace of mind that when the time comes, your loved ones won’t have to deal with the financial or practical challenges of arranging your funeral.

PRO: Lock-in today’s funeral prices

In the last 17 years, the average cost of a funeral has risen 121%, from £1,835 in 2004 to £4,056 in 2021[1].

With a prepaid funeral plan, one of the key benefits is that it can protect against inflation and lock-in today’s prices.

The amount you’ll pay for your plan remains fixed, even if the cost of the services included increase in the future.

This could potentially save your loved ones money when the time comes, as they won’t have to pay the higher going rate.

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PRO: Arrange your funeral according to your wishes

A funeral plan allows you to make the important decisions for your funeral in advance, as well as record your final wishes.

You can personalise the plan with special requests such as which hymns, music, and readings you’d like for the service.

You can even advise on the type of flowers you’d like or the charity you want donations to go to.

Making your wishes known for your funeral can help to alleviate any uncertainty over these when the time comes.

PRO: Flexible payment options

One pro of funeral plans is that there's usually a choice of payment options to suit different budgets.

For example, you can choose to pay the total cost in one go (if you have the money available), or you can spread the cost in low monthly payments.

A funeral plan is different to a life insurance policy because the price you pay is fixed.

Although, if you opt to pay for your plan in long term monthly instalments then you may be charged instalments fees on top of the cost.

PRO: Doesn’t form part of your estate (avoid/minimise 40% IHT)

The money you've paid towards a prepaid funeral plan isn't considered as part of your estate when you pass away.

As a result, your plan won’t need to go through the probate process, and it won’t be subject to inheritance tax (40% on any amount over the £325,000 threshold).

This means a couple of things:

  1. The pay out is made straight away to your nominated funeral director when you pass away. Meaning that your loved ones won’t have to find the money to cover the cost of your funeral in the meantime.
  2. The pay out is protected from 40% inheritance tax if your estate is worth over the threshold. The full amount is available when you pass away to cover your funeral costs.

PRO: Some plans pay out even if you die before completing all your payments

If you choose to pay for your prepaid funeral plan by monthly instalments over a long payment term, then there’s a risk you could pass away before completing all your payments.

Fortunately, some funeral plan providers will still carry out your funeral as agreed in your plan if this were to happen - as long as the plan had been in place for at least 12 months and your payments were up to date.

This is a great benefit as you’ll have peace of mind that there won’t be any shortfall for your loved ones to pay when the time comes.

Furthermore, if you pass away due to an accident within the first 12 months, the provider will still honour your plan.

Other funeral plan providers will require that your family or estate pay the remaining balance so that the funeral can go ahead as agreed.

PRO: Guaranteed acceptance to UK residents

When you buy a funeral plan, there’s no need to answer any health or lifestyle questions and acceptance is guaranteed.

This makes it a good alternative for people who want to arrange financial protection for their loved ones but have found life insurance too expensive due to their health.

Age restrictions vary between plan providers, for example some will accept applicants from the age of 18 with no upper age limit, whilst others will only accept applicants within a specific age range, such as 50 – 80.

PRO: Regulated by the Funeral Planning Authority (FPA)

The FPA regulates 95% of funeral plans in the UK, with the primary aim to ensure that funeral plan customers receive the funeral they’ve paid for when it’s needed[2].

Under the FPA rules, registered funeral plan providers must keep funeral plan funds secure in a whole of life insurance policy or independent trust fund.

This ensures that if anything were to go wrong with your provider, the money to pay for your funeral would be separated and ring-fenced.

Some types of funeral plans aren’t regulated by the FPA, but do come with protection from the Financial Services Compensation Scheme (FSCS).

The FSCS will provide your loved ones with adequate compensation if the funeral plan provider is unable to pay out for your funeral.

CON: Ties up funds

The first con of a funeral plan is that it will tie up funds that could be spent elsewhere.

For example, you may rather have the money to enjoy whilst you’re living and/or to save for other big expenses in the future, such as home adaptations or care home fees.

Although, if you choose to buy a plan, you have the option to cancel if you change your mind or if you find you can no longer afford the payments.

If you cancel within 30 days you’ll receive a full refund, but if you cancel after the 30 days then there will be a cancellation fee (amount depending on the provider).

CON: Can only be used to pay for your funeral

A prepaid funeral plan can only be used for the purpose of your funeral.

Unlike a family life insurance policy, it won't provide your loved ones with a cash pay out.

When you pass away, the funds from your plan will be paid directly to your nominated funeral director to cover the cost of your chosen funeral services.

Your loved ones won’t be able to exchange the plan for cash. Although, some plan providers will allow your loved ones to cancel your plan and have the money refunded to your estate, if they want to make alternative arrangements when the time comes.

A funeral plan is a good idea for people who want certainty that their funeral services are paid for in advance.

CON: Not all costs are covered

Funeral plans won't cover every element of a funeral, as some costs are outside of the control of the provider and can't be paid for in advance.

When buying a plan, it's important to understand exactly what's covered in the plan and what's not.

For example, not all funeral plans will cover essential third-party fees, particularly the cheaper funeral plans available.

Third-party fees, also known as disbursement fees, are costs paid to third parties for arrangements not provided by the funeral director. They include:

  • Cremation or burial fees
  • Minister fees
  • Doctor’s fees.

Some plans provide an allowance towards these costs, but there may be a shortfall for loved ones to pay if the allowance is insufficient when the time comes.

Other funeral plans will guarantee to cover a cremation or burial, and sometimes minister or doctor’s fees.

There are some elements which are never included in a fixed plan, such as:

  • Flowers
  • Embalming
  • Funeral notices
  • Live music
  • Extra limousines
  • A memorial

Although, with some plans you may be able to pay an additional contribution towards some of these costs on top of the initial cost of your chosen plan.

CON: Most plans can’t be taken overseas

Most funeral plans taken out in the UK won't cover your funeral costs if you emigrate and pass away overseas.

If you're on holiday when you pass away then sometimes the funeral plan provider will fly your body home, at an additional cost, before carrying out the service as arranged.

Transportation of the body may be covered by some travel insurance, so if you have a funeral plan in place, then it may be sensible to ensure you have this additional protection in place before going on holiday.

CON: May not be worth it if death is close

A prepaid funeral plan may not be worthwhile if you’re expected to pass away soon.

This is because the cost of a funeral plan may not be cheaper than the cost of a funeral arranged at today’s going rate.

The advantage of paying for your funeral in advance is to ensure that your family won’t have any unexpected costs in the future, when funeral prices may have risen.

It may not be worth paying ahead of time if your funeral is required in the near future and your family are able to take on the arrangements.

Also, as mentioned, some funeral plans guarantee to pay out after the first 12 months (if you’re paying by monthly instalments over a long term).

This means you would need to survive the first 12 months to be eligible for this benefit and ensure that your loved ones are protected from the full cost of your chosen funeral services.

If you pass away during this initial period, then your loved ones would have to cover the remaining balance of the plan.

Unless they choose to make alternative arrangements - in which case, the funds paid towards your plan would be refunded to your estate.

Other providers won’t honour your plan if you were to pass away at any point during an instalment plan with them, which means your loved ones would still need to fork out for your funeral.

Therefore, it may be worth considering if paying in advance makes more sense than paying for the funeral at the going rate when the time comes.

CON: Not yet regulated by the Financial Conduct Authority (FCA)

Currently, funeral plans aren’t regulated by the Financial Conduct Authority (FCA).

The FCA regulate the financial services sector with the primary aim to protect consumers and ensure they get a fair deal.

From July 2022, the funeral plan market will come under the scrutiny of the FCA.

As a result, funeral plan providers must apply for authorisation from the FCA in order to continue selling their plans from this date.

Before buying a plan, it’s important to check that the provider has submitted their application for authorisation, and that they currently offer FPA or FSCS protection.

Pros of taking out a funeral plan early

The earlier you take out a prepaid funeral plan, the more money you could potentially save your loved ones in the future.

As mentioned, the cost of funeral services has increased by 121% in the UK, and by 2026 the average cost of a basic funeral could be more than £5,000.

For this reason, a funeral plan could be a good idea to lock-in today's prices and protect your family from soaring costs.

With some providers, the minimum age to buy a prepaid plan is 18 and with others, they only offer funeral plans for over 50s.

Are funeral plans worth it?

Funeral plans are worth it for many people, but not for everyone.

A funeral plan may be worthwhile for you and your family if:

  • You have the money available to cover the full cost of a plan or have the disposable income to pay in monthly payments
  • You have specific wishes for your funeral and want to take control of the arrangements
  • You want to protect your family from the difficult burden of planning your funeral
  • Your family wouldn’t have the money at short notice to pay for your funeral
  • You want to avoid inflation and lock-in today’s prices
  • You don’t have a life insurance policy or other financial provisions
  • You have a life insurance policy, such as an over 50s plan, but the pay out won't be enough to cover your key funeral expenses

Compare funeral cover

As mentioned, Reassured aren’t able to offer a traditional funeral plan which has been discussed throughout this article.

However, we can help you arrange a SunLife Guaranteed Funeral Plan which is an insurance policy designed to cover your funeral costs.

Premiums begin from just £19.18 a month and after two years the cost of your chosen funeral services are guaranteed to be covered when you pass away.

Our award-winning broker service is fee-free and without obligation.

So, get in touch with our team of funeral plan experts today to compare free quotes and find your perfect plan.

Sources:

[1] https://www.sunlife.co.uk/siteassets/documents/cost-of-dying/cost-of-dying-report.pdf/

[2] https://funeralplanningauthority.co.uk/

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  • The SunLife Guaranteed Funeral Plan is an insurance policy which after two years guarantees to pay for your chosen funeral services
  • SunLife is authorised and regulated by the Financial Conduct Authority
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