Having recently suffered a loss of my own and simultaneously having the family of a client go through the same my mind has turned to the various ways in which we can fund our funerals to remove the burden from our families of worrying about how to pay for the funeral.
“How much will my funeral cost?” is a difficult question to answer there are a huge number of variables from the obvious like cremation or burial to where you happen to be living at the moment, the table below from the Royal London National Funeral Costs Index shows the variation even just in the North East of England.
And of course, the hidden issue is inflation, undoubtedly the cost of a funeral as with everything overtime the cost of a funeral will rise over time, making it even harder to know how much you need to provide.
There are several ways that you can look to fund your funeral and this article I intend to address the positive and negatives of the main methods of planning to fund your funeral I will cover, Cash, Whole of Life Insurance, Guaranteed Over 50s Plans, and Prepaid Funeral Plans.
Cash / Investment
If you have enough in savings now and you do not expect to need it then ring-fencing it in a savings or investment account is, of course, the simplest and arguably the best way to provide for the cost of your funeral. By placing the funds into such an account you can, of course, hope to maintain the value in line with inflation by either topping up or growth/interest. It also, of course, has the advantage that you can make the account a ‘joint’ account with the person likely to be arranging your funeral which should ease the administration for them.
The main disadvantage to cash is that it will be part of your estate and thus could be subject to probate depending upon your financial situation.
A Pre-Paid Funeral Plan.
Pre-paid funeral plans have become particularly popular in recent years, as they are not a regulated product in the same way that traditional insurances are they are widely ‘sold’ by funeral directors themselves and by solicitors, accountants and anyone else that the plan providers wish to engage to do so.
The biggest advantage to a pre-paid funeral is that it removes the worry of inflation eroding the value of any other arrangement. They allow you to make the decisions on what will and won’t be covered as you can opt for simpler or more modest arrangements at your discretion.
The main disadvantages of pre-paid funeral plans are their lack of flexibility, they are generally linked to a particular Undertakers or chain of Undertakers and the funeral has to be arranged via that undertaker and as hopefully, you won’t need it for a long time there is no guarantee that they will still have a branch near your home which can lead to some awkward arrangements.
Another major disadvantage can be the lack of flexibility, you have already made the choices on what is a going to be provided for within your plan and if at the time the plan is needed circumstances have changed and maybe more or fewer cars are needed for example the plans rarely seem to offer the flexibility to provide for that.
These plans can be paid for in full upfront or can be available in instalments but the full cover isn’t normally in place until it is entirely paid for.
Insurance
Insurance plans have been around for a long time and they are of course meant to be the best of both worlds, ultimately they provide the cash to allow a family to make the choices at the time based on the funds available and the circumstances at the time. Of course one of the main advantages is that with cash from the policy your family can go ahead and have total freedom in what they wish.
There are two types of insurance plan that would generally be used to fund a funeral, the first being a ‘Whole of Life’ plan and the second and a variant known as the ‘Guaranteed Over 50s’ plan.
Whole of Life Insurance.
A ‘Whole of life’ plan is exactly as it sounds an insurance plan that you take out that will both cover you for the whole of your life and will pay out the sum insured from day one of being insured until eventually your family claim and you would usually pay premiums for the rest of your life too. It can also be inflation-linked to protect purchasing power.
The premiums can start low and you can opt for them to rise (as the cover rises) or stay level.
The main advantage is that you have the full level of cover from the start of the plan, so they are ideal if you don’t have the savings to set aside.
The plans are medically underwritten meaning you have to fill out a form with your health and medical insurance and maybe go for a medical if requested. This is both a positive and a negative in that if you are in great shape you will find you get a low premium however if you are not or haven’t always been it can be time-consuming and the result can be a high premium.
Of course, regularly mentioned as the biggest risk being that with insurance you might pay more in than the plan pays out! But of course, that is the nature of insurance it’s a gamble on behalf of the insurer based on how long they expect you to live based on the information they have on you.
Guaranteed over 50s plans.
The Guarantee in the ‘Guaranteed Over 50s Plan’ is simply guaranteed acceptance, there are no long medical history forms to be completed as long as you are over 50 and the cover can start very quickly. These plans were specifically designed to provide for funeral cover and they have been designed to be as simple as possible, from day one you know how much cover you will get and how much it will cost you and the premiums have an end date so you also know the maximum total cost.
To provide the plan without any underwriting the cover doesn’t start for 1 or 2 years depending on the providers’ terms, in the event, you die during this period then your family will receive a refund of your premiums and on some plans a 50% bonus. To calculate the cover or premium available, all the insurer needs to know is your date of birth, whether you smoke and either how much cover you want or how much you are willing to pay.
The plans generally have no surrender value and if you live a long time then you could end up paying in more than you will get out, but as the premiums do have an end date you will know the maximum cost from day one. And of course, as the cover and premium are fixed the value is eroded by inflation.
Which is best?
As you might expect as Independent Financial Advisers, we give personalised advice so the answer is as always ‘it depends’ on your circumstances but in most cases, we find a blend of the above is best but being upfront I would rarely if ever recommend a pre-paid funeral plan, in the future this may change as it is being considered that they may become more regulated the flexibility may improve and make us consider them more, so as always we will keep abreast.
If you want to discuss your needs as always just get in touch.