What is a Funeral Plan?

Putting Money Aside for Your Funeral

A funeral can be a significant and sometimes unexpected expense. Putting money aside is a sensible precaution and will bring peace of mind to you and your loved ones. This can be done in a number of ways and it is important to research the options thoroughly before deciding which works best for you.  

What is a Pre-paid Funeral Plan?

A funeral plan is a way of putting aside money to cover most of the cost of your funeral when you die. Funeral costs are rising and many people worry about not having enough money in their estate and leaving family with a large, and perhaps unexpected, bill. Some funeral plans fix the cost of your funeral at today’s prices, protecting against future increases.

Until recently, the funeral plan industry was unregulated.  However, in July 2022 the Financial Conduct Authority implemented regulation to enhance consumer protection. It is now a criminal offence for a company to attempt to sell or administer a funeral plan contract unless it has FCA authorisation.

To check that your provider is authorised with the FCA, click here.

There are a number of pros and cons to investing in a funeral plan and you will need to look carefully to see if it is right for you. Also, funeral plans vary so check carefully what is, and what is not, included.

Funeral Plans content, what they cover, and their terms and conditions vary, so it is essential to do your research and take professional advice before investing in a funeral plan. There are a number of pros and cons, a few of which we have outlined here. There are also alternative ways of setting aside money to cover the cost of your funeral.

Pros of a Funeral Plan

  • peace of mind – knowing that your loved ones will not be left with an unexpected bill for your funeral and that at least some of the costs should be covered
  • being able to arrange in advance the type of farewell that you would like
  • because the money has been invested prior to your death, it will not be subject to Inheritance Tax (IHT)

Cons of a Funeral Plan

  • not all elements of the funeral are covered by a plan. Some burial and cremation costs and extras such as flowers will not be included
  • if you pay a lump sum upfront, rather than in monthly installments, that money will not be available to you for other things you may need during your lifetime. Consider whether you can afford to have that money tied up if your circumstances change
  • funeral plans tend to be long-term investments and if you die soon after taking it out it there will be penalties (for example, a relative may have to pay the outstanding balance before the funeral can take place)
  • there may be charges if you decide to cancel the plan

If you move house after taking out a funeral plan, remember to tell your plan provider. Funeral costs vary throughout the country and may be different in the area you move to.

Alternatives to a Funeral Plan

Savings & Intestments

A funeral plan is a way of putting money aside for, and sometimes ‘future proofing’ against the cost of, a funeral. However, other forms of savings vehicles can achieve the same aim, but may also give you more flexibility in terms of accessing the funds should you suddenly need them. A regular savings account in a bank or building society is more secure and flexible, although won’t have the same tax benefits and is subject to the vagaries of inflation and low interest rates.

Over-50s Life Insurance Plan

Funeral insurance (also known as an over 50’s insurance policy) is also available. As with a funeral plan, policies vary and have different restrictions and terms and conditions, so it is essential to do your research and take professional advice before making a decision.

Life Insurance Plan

A regular life insurance plan can also cover funeral costs. Again, it is essential to do your research and take professional advice before making a decision.

Keep Family Informed

Tell your family about any financial arrangements you have made and keep paperwork with other important documents so it is easy for your family to find it.

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