Funeral plans and over 50s plans are two different ways of paying for part of a funeral in advance. Here’s what to bear in mind if you’re thinking about taking one out.

• Why use a funeral plan?
• Questions to ask the plan provider
• More information about funerals

Why use a funeral plan?

Many people worry that when they die, they won’t leave enough money for their funeral and their loved ones will be left with the bill.

With a funeral plan, you arrange and pay for it in advance, so your relatives don’t have to cover all the cost themselves.

You can arrange a funeral plan for your own funeral or for someone else’s, as long as it’s held in the UK.

Find out more in our How much does a funeral cost? guide.

Funeral plans explained

With a standard funeral plan, you pay for your funeral in advance, at today’s prices. You can pay the plan provider in either a lump sum or instalments. You can buy a plan from most funeral directors.

Funeral plans vary in terms of what’s included. All plans include the services of a funeral director who takes care of the deceased, arranges the funeral and organises transport.

However, there are differences with the additional services that plans offer. Some may provide high-quality coffins, access to view the deceased in a chapel of rest, and limousines to transport guests to the funeral. Other plans may be more basic.

As well as the core costs of the funeral director and coffin, funeral plans will also include – or make a provision for – third-party costs. These can include the cost of using a crematorium, doctors’ fees and the cost of a minster or celebrant. These third-party costs are usually called ‘disbursements’.

If you’re buying a cremation funeral plan, it won’t usually cover the cost of disbursements in full. Instead, they’re covered by an allowance, which rises in line with inflation. However, there’s a risk that if funeral costs rise faster than inflation, there won’t be quite enough money in your plan to cover these costs. This would leave your family or estate with extra to pay when you die. Some funeral plans offer a guarantee to cover all third-party costs.

If you’re opting for a burial funeral plan, it will usually include the cost of digging the grave. But the cost of the burial plot – as well as extras such as headstones – won’t be included.

Funeral plans never include the cost of flowers or organising a wake. But some plans allow you to put aside some extra money to cover these costs.

It’s important to make sure you know what your plan does and doesn’t provide before you pay.

How safe is money in a funeral plan?

Your money must either be invested in a trust fund with trustees, or in an insurance policy, which is then used to pay for the funeral.

Funeral plans aren’t currently regulated. But the government has announced plans to bring them under regulation by the Financial Conduct Authority.

For now, the industry relies on a voluntary regulator called the Funeral Planning Authority (FPA). They don’t offer the same level of protection for customers as a government regulator, but they do have a set of standards their members have to follow. They also help to resolve customer complaints.

Make sure that you only buy plans from companies that are part of the FPA. You can check their list of members on the FPA website.

If you’re paying for your funeral plan in a lump sum, you could consider paying for part of it on your credit card.

When you pay with your credit card, you can get extra protection if things go wrong with the funeral director. You could also get this protection if you were to pay at least £100 on your credit card, and then pay the rest in instalments.

If you die before you’ve finished paying the instalments, your family or estate will need to pay the balance. Some plans offer to pay the remaining instalments through a form of insurance.

Pros and cons of funeral plans

Pros:

• Funeral plans give you the chance to make the arrangements that you want for your funeral.
• They protect you against rising costs.

Cons:

• They can be expensive. Even if you’re paying in instalments, they’re likely to cost at least £20 a month – and often considerably more.
• If funeral prices fall, you could end up overpaying for your funeral.
• Some plans don’t guarantee all the costs.
• Funeral plans aren’t currently regulated.

Questions to ask the plan provider

• Are there any cancellation charges?
• What exactly is included in the plan and what potential costs are not?
• Could there be any other expenses for the funeral, and what happens if there are?
• Is it possible to cancel the plan if circumstances change, for example if you’ve arranged for your spouse’s funeral but you later separate?
• Does the plan allow you to choose the funeral director?
• What if your chosen funeral director goes out of business?
• What happens if the person the funeral is intended for dies abroad or away from home?
• Can the funeral director arrange a funeral of a different standard from the one you’ve chosen?
• If you pay by instalments, how long do you do this for and do you have to pay interest?
• What happens if there are outstanding instalments at death?
• What freedom do you have to change the details of your funeral plan?
• How does the funeral planning company know about the plan holder’s death?

For more information about funeral plans, costs and help figuring out if you need one, visit the Which? website.

Fairer Finance also publishes ratings of funeral plans and cremation plans.

Over 50s plans explained

Over 50s plans are insurance policies that guarantee to pay out when you die. You pay a fixed amount every month for the rest of your life. In most cases, the payout doesn’t rise with inflation.

They can be poor value if you live a long life – as you’ll end up paying in much more than you’ll get out. However, they may be right for you if you can’t afford a funeral plan and you don’t trust yourself to save for your funeral in a savings account, without spending the money on something else.

Pros and cons of over 50s plans

Pros

• Over 50s plans don’t need any medical underwriting. This means that being in poor health makes no difference to your payout.
• You can pay as much as you can afford – unlike funeral plans where minimum premiums are much higher.

Cons

• In most cases, you lose your whole payout, and you won’t get any money back, if you stop paying in the first few years. However, some providers are now offering payment holidays – to give you some breathing space if you’re struggling to keep up with payments. And a growing number of policies will still protect some of your payout if you stop paying after a certain number of years.
• The payout on most plans doesn’t increase with inflation. This means many people end up paying more in premiums than their payout.
• Whole of Life insurance could pay out more than 40% more when you die than an over 50s plan – according to Which?.
• You usually need to survive beyond the first two years of an over 50s plan to get the full payout.
• Some plans require you to continue paying premiums until you die. This means that if you live a very long time, you could pay far more in premiums than you’ll get back.

Find out more about the risks of over 50s plans on the MoneySavingExpert website.

Fairer Finance provides ratings of over 50s plans.

Alternatives to funeral plans and over 50s plans

Putting money into a savings account

Putting a little money aside each month is one straightforward way to save for a funeral. This isn’t risk-free though, as you may die before you build up enough to pay for a funeral. And many people worry that they may not have the discipline to leave their savings untouched.

Using the money you leave behind in your will

You may have assets that can be sold when you die, such as your house. You could make it clear in your will that you want these to be used to pay for your funeral. However, it can take some time for properties to be sold after someone dies. So it’s worth talking to the family member who you want to arrange your funeral and checking that they have enough to pay upfront.

Death in service from an employer

Some employers provide a payout if you die while you’re still working for them. If you’re a member of a trade union, professional body or other association, they might pay a benefit when a member dies. Contact them to find out.

Life insurance

Using the lump sum payment from a life insurance policy can pay for a funeral. According to the Association of British Insurers, payments are generally made about a month after the policyholder dies. It could be longer if the death needs to be investigated.

For more information on who pays for the funeral and what happens if you can’t afford one, see our Help paying for a funeral guide.

More information about funerals

The links below include more general information about funerals. For example, the different options available, choosing a funeral director, rights, choices, and help with costs.

The sources of information differ depending on where you live:

• For England and Wales, visit GOV.UK
• For Northern Ireland, visit nidirect
• For Scotland, visit the Scottish Government websiteopens in new window

This article is provided by the Money Advice Service.