Funeral plans vs Life insurance
Posted 15th November 2018
There are two main options when it comes to covering the cost of our funeral, and we
are going to compare them both below.
Funeral Plan overview
A pre-paid funeral plan is currently the only product on the market that both freezes the price of your funeral, and is tied in with a local funeral director.
When you take a funeral plan out, the price of your funeral is fixed at the current price. In most cases, your chosen/nominated funeral director accepts the plan at the present value and you have the option to add wishes such as songs, hymns, eulogies and the like.
Typically, you can choose to either pay a lump sum for the total price of the plan, or spread the balance over a period of years (the length of time allowed to pay off the plan depends on the provider however it is typically up to 10 years). Some providers also offer insurance backed plans.
Whole of Life Cover Overview
A Whole of Life Policy is designed to cover you for a fixed sum of money based on your monthly premium. A hypothetical example would be if you paid £10 per month, you may get an assured cash sum on death of £1500.
Although it varies between different providers, you usually have to pay your monthly premium until you die or reach 90 (some providers are 80 years of age, and others are until you die). Typically, you are not covered during the first two years (some providers are just one year). Provided you have continued to pay your monthly premium for both the minimum period, and until you reach the maximum term time, when you die your next of kin/chosen beneficiary can claim the assured cash sum.
Funeral Plan pros and cons:
- Price of the funeral was frozen when you took out the plan meaning there is nothing left to pay your funeral director for his professional fees
- Choose your preferred funeral director and have everything organised with him
- You get to plan precisely what you want to happen which means your family will not be forever-wondering if what they did was what you wanted
- Save your family having to pay for an at-need funeral which is typically thousands more than what the price of the funeral would have been
- 3rd party disbursements (crematorium fees/grave digger fees, ministers/officiant fees etc). Funeral plan providers put an allowance towards these which is typically between £900-£1200 dependant on the provider. All funeral plan providers offer plans that do and do not cover these. If you choose a plan that does not include the allowance, your family would have to pay for these at time of need. Also, if the allowance is less than the total price of the 3rd party fees, there may also be a bill.
It is also important to remember that not all providers increase the 3rd party disbursement allowance. Always check this before taking out a funeral plan.
Life insurance pros and cons:
- A lump sum of money that the money will have access to in the weeks following your death
- Monthly premiums can start at as little as £5 per month which means these policies are affordable for everybody
- You can leave these policies in Trust/to a named beneficiary making it easier for your intended beneficiary to claim the money on your death
- Some providers will allow you to assign your policy to a funeral plan provider so that when you die, this money is automatically given to that particular funeral plan provider. The total cash sum that you were covered for is then deducted from the overall funeral bill and your family would have to pay any outstanding difference (example – your total sum assured was £3,0000, but the funeral bill was £5,500, your family would have to pay an outstanding bill of £2.500). There is often a discount added to the funeral however it is important to remember that the price of the funeral is not frozen and the price that you will pay will be the price at the time of need
- The money stays the same throughout your lifetime and does not increase. This means that if you covered yourself for £3,000, but the average funeral cost is £4,000, there is a shortfall of £1,000 which will only increase each year
- You are not able to increase the amount that you have covered yourself for. The only way to increase this is to take out a second or third policy to create an overall amount however this can be costly
- The policy is not tied in with a funeral director and does cater for funeral wishes
- Due to the money potentially not being available instantly, the family will have to find the money for your funeral out of their own pocket
When comparing the two, we have reached the following verdict.
If you are looking for something that specifically covers the funeral bill, a pre-paid funeral plan is the best option. If you want to make absolute certain that the family are left with nothing to pay, it could be worth considering a very small whole of life policy to run alongside the funeral plan.
When it comes to talking about our demise, we are all guilty of burying our heads in the sand. Nobody likes talking about dying, and it is because of this that we put off making important decisions surrounding funeral cover.
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