This might surprise you, but we do recommend you look at the alternatives to buying a funeral plan. In the same way we pay for homes in different ways – with a mortgage, by renting, via a half-and-half arrangement – everyone’s plans for paying for a funeral are unique, too.
Everything depends on your situation. So, what we’ll do here is run through the four most common alternatives to a funeral plan. Hopefully, you’ll find this feels unbiased. What’s most important to us, is that you choose the right option for you and your family. Here we go:
A very simple and safe option (as long as the money’s not going under your mattress). You might think about putting money into a bank account, or an ISA, or something other long-term savings plan – a high-interest building society account, perhaps.
Why is this a good idea? Well, it definitely gives you more control over the money while you don’t need it. And the money is with an institution that’s regulated, so there’s peace of mind there, too. But there are two significant disadvantages to ‘savings’ being a choice for paying funeral costs.
When savings are needed to pay for the funeral – the most basic parts of the funeral, at least – your family may still need permission to access those funds. That’s not always possible, quickly.
Plus, there’s no guarantee what interest rates will do or how the money will grow over time. In the background, funeral costs are always rising. In other words, if you put £5,000 into an account today, your funeral might cost more than the amount you’d have in that account in 10 years’ time.
Still, savings do give you control over your money now.
A WHOLE-OF-LIFE INSURANCE POLICY
Life insurance – whole-of-life insurance – exists to provide a payment when you die. But there’s no rule stating what the money will be spent on, and that is important to remember. The payout is paid into your estate or to a named beneficiary as soon as it’s practical to do so.
Many families see these policies as an excellent way to save money for end-of-life plans – and rightly so. The monthly payments are usually quite low, although they might be higher if you’ve been asked to have a medical exam. That’s usual. When you apply for most kinds of life insurance, you’re asked a few questions about your health. Depending on the answers, your premiums may be higher or you may be declined cover.
Some whole-of-life policies do guarantee a minimum pay-out. Others won’t. There may be a waiting period – known as deferment – which is usually one or two years, during which time the policy won’t pay out the full amount if you die. And, it is always possible that you live for a very long time (we do hope so), but if you that’s the case, then you may pay in more than the policy will provide.
Also, whole-of-life insurance can’t be ‘redeemed’ while you’re alive. And unless you buy an index-linked or inflation-linked policy, you can’t be sure the amount you put in will have the value you’re depending on to pay for a funeral – which is why you’re looking at the policy.
So what’s the big advantage? Well, whole-of-life insurance is a simple product. It’s also a regulated product. As long as you’re paying in consistently and never miss a premium, there will definitely be a payout – it’s guaranteed to deliver on its promise. And, as mentioned, whole-of-life policies can have relatively lower monthly premiums than some other products.
OVER 50S POLICIES
An Over 50s policy is another, regulated whole-of-life policy – but this time, you can’t buy the insurance until you’ve had your 50th birthday. So far, so good. However, believe it or believe it not, you may find there’s an upper age limit to an Over 50s plan, usually 80 years old. Where there is a significant advantage over whole-of-life insurance, is in the guarantee to be accepted. We can’t find any Over 50s plans that involve a medical exam. This is good news – we’ll explain why in a second.
Different providers offer different payouts, which is normal, but most of them also have a ceiling on how much you can guarantee in that payout – and not all Over 50s plans are index-linked or inflation-proof. That’s important. Again, depending on which plan you buy, you might pay in more than your family receives as a payout and, usually, if you die within the first year, then your family won’t receive the fixed lump sum. They’ll receive an amount that’s equivalent to what you’d paid in.
That said, Over 50s plans are simple. They’re regulated. And, especially if you’re in poor health or you have a prohibitive lifestyle – you’re a heavy smoker or you’re very obese – then these plans can be a sound financial option. You don’t need a medical, even though your life expectancy is likely to be much lower. Again, for us though, the downside is that an Over 50’s policy payout isn’t specifically linked to the costs of paying for your funeral – and unless it’s index- or inflation-linked, there’s no guarantee what that payout will cover. This brings us to…
As long as you’ve paid in the full amount agreed, a funeral plan guarantees to pay the basic costs of your funeral – the funeral director’s costs. With a funeral plan, you can also make wishes that will be passed on to the funeral director. It’s a paid-up promise, your end-of-life planning is all in hand.
So what are the disadvantages? Well, if you plan to retire abroad, then most UK-based plans wouldn’t cover you to have a funeral in that country, us included. But let’s be clear, there are three main things about funeral plans that many people don’t like – and we think we’re the only funeral plan provider who’ll be this frank with you.
First, there’s an administration cost for liaising with the funeral director. That’s paid for by part of your plan. Other kinds of policy, like Over 50s plans, simply don’t make that same commitment – it’s not part of what they do, so your family has to do it instead. In addition, a part of your plan will cover the cost of us running our business responsibly, the same way banks charge account fees for having access to an overdraft. To us, that feels sensible.
Second, it’s very important to understand what’s covered by a funeral plan and what’s not. Some plans cover third party costs (the unavoidable fees, things like paying for burial or cremation), and some do not – it’s up to you to check, and buy the plan that provides what you prefer. In addition (unless you add these in advance), your family will still have to pay for those personal wishes. Things like orders of service, flowers, and a headstone perhaps. However, a funeral plan guarantees to pay the funeral director’s costs, directly, no matter how much those costs go up in the future.
And third, we’re not regulated as an industry yet. Most funeral plan providers are part of the Funeral Planning Authority. To be a member, we have to demonstrate we’re operating under the Authority’s code of practice. It’s very much like being regulated. For us it means proving that your money will sit, safely, in an independent, ring-fenced Trust – the Safe Hands Trust Fund.
Did that help? Is there anything else you’d like to find out? You’re more than welcome to ring us up and pick our brains on the pros and cons of funeral plans – and other products – at any time. We’re not financial advisers, but we can explain how our products might fit into other financial plans.