Prepaid funeral plans
pros and cons

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).

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.

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.

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.

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.

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.