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Funeral plan or an over 50s plan to pay for a funeral?

More and more of us are considering a funeral plan or life insurance to pay for our funeral. 

Particularly as the average cost of a basic funeral is now £4,271*, an increase of over 122% since 2004. 

This is a huge financial burden to leave behind to our loved ones. 

So, you’ve decided to make financial provisions for your own funeral and are researching your options. 

We explore two of the most common ways to cover a funeral; a funeral plan or an over 50s plan.

Funeral plan

It’s predicted the cost of funerals will continue to rise, but with a prepaid funeral plan you can lock in today’s price of a funeral. 

A funeral plan also allows you to make all the arrangements for your own funeral, releasing this burden from your family. 

Over 50s life insurance plan

An over 50s plan is a form of life insurance that guarantees to pay out a cash lump sum to your family when you pass away. 

The pay-out could be used towards the funeral, or how your family see fit. 

You’ll not need to provide any medical information to the insurer to secure cover. 

Main comparisons between a funeral plan and an over 50s plan 

Funeral Plan

Over 50s Plan

  • Avoid rising funeral costs by locking in the cost of today’s funeral
  • A guaranteed cash lump sum paid to your family when you pass away (up to £25,000)
  • Choose to pay either in one lump sum or by monthly instalments
  • Fixed monthly premiums to be paid until you pass away (or until your 90

th birthday)

  • Select a funeral plan to suit your budget 
  • Sum assured amount is determined primarily by your age, and the premium you can afford to pay each month 
  • Arrange in advance all aspects of your own funeral, so your family don’t have to
  • Write in trust to speed up the probate process and avoid or minimise inheritance tax
  • Funeral plan proceeds go straight to the funeral director when you pass away 
  • Beneficiaries can use the pay-out to pay for the funeral, or how they see fit
  • Guaranteed acceptance, regardless of your health or age
  • Guaranteed acceptance for 50-85 year olds (no medical required)
  • Cancellation flexibility

(cancellation with an over 50s plan means losing all premiums paid in)

  • Add on a funeral benefit option

How does a funeral plan work?

A funeral plan allows you to pay in advance for your own funeral. 

You can either pay in full, or by monthly instalments to spread the cost.

Funeral plans can be taken out directly with a funeral provider, such as Co-op or Golden Charter, or by using a broker such as Reassured (the largest life insurance broker in the UK). 

In any case, with a funeral plan you’ll be paired with a local funeral director who’ll support you with all aspects of arranging a funeral. 

And when the difficult time comes, your family will receive the same support and guidance. 

Seems like a no-brainer, but this option might not be for everyone.

What is the cost of a funeral plan?

Essentially, the cost of a funeral plan will depend on your final wishes, and how these are displayed at your funeral. 

The level of service and personalisation required for the day will have an impact on the cost. 

Plan prices usually range from around £2,850 for a cheap funeral plan, to £4,250 for a superior funeral plan

A direct cremation funeral plan that doesn’t include a ceremony, costs much less, starting at around £1,395.  

Prices will vary with each provider, which is why it’s essential to compare multiple funeral plans for the best price and service. 

What are the benefits?

Avoid rising funeral costs

With life insurance or personal savings, the value of these may decrease over time due to inflation (particularly over a long period of time). 

However, a funeral plan is not affected by inflation. 

A funeral plan guarantees to cover the cost of all the funeral services agreed, no matter how much prices increase. 

Which is some comfort, particularly as we know the cost of a funeral has risen 122% in the last 15 years. 

So, you can see how a funeral plan could financially aid your family in the future when arranging your funeral.

Choose how you pay

There is some flexibility when deciding how to pay for a funeral plan. 

Unlike with life insurance, in which you would pay a fixed monthly premium.

There are usually several payment options, including the option to pay in full upfront if you have the savings ready. 

Most of us will not have savings, and so a regular monthly payment may be more achievable. 

This is usually 12 interest-free monthly payments, or monthly instalments over 2 to 30 years. 

Although paying by long-term instalments will incur interest and you’ll end up paying more than anticipated for your funeral. 

The payment options available to you may be affected by your age. 

Passing away before all payments have been made 

Many funeral providers will still cover the cost of your funeral, or some aspects of your funeral, if you pass away before completing all the payments. 

This provides some peace of mind knowing that your family will receive some help with funeral costs, and your initial investment will not be wasted. 

This is usually applicable only to those with a long-term instalment plan, and who have paid at least the first 12 monthly payments. 

If you pass away before the first 12 monthly payments have been paid, funeral providers tend to refund all the payments made to your funeral plan, minus a cancellation fee. 

Cancellation policy

It really is a bonus that a funeral plan can be cancelled without much fuss. 

Cancelling within the usual 30 days will not incur a cancellation fee. 

Cancelling after 30 days generally incurs a cancellation fee, however what you have paid so far into the plan is likely to be refunded. 

If you miss several funeral plan payments in a row, then your plan will be cancelled by the provider, however what you have paid into the plan is likely to be refunded, minus the cancellation charge. 

The drawbacks of a funeral plan

When shopping around for the right funeral plan, there are some things to keep an eye out for. 

Does the plan cover all funeral costs, including third-party costs? 

Third-party costs include doctor and minister fees, and burial or cremation fees. 

These make up approximately 30% of the total cost of a funeral. 

Many funeral plans do not cover third-party costs, so when the time comes your family will have to make up the shortfall. 

But there are funeral plans available that do cover all third-party costs, which is why it is important to research your options.   

A funeral plan can only be used for your funeral (unlike an over 50s plan). 

When you pass away, the funds paid towards your funeral plan will be paid directly to your allocated funeral director. 

With an over 50s plan, the beneficiary of the policy makes the decision of how the pay out is spent. 

Funeral plans do not include the cost of a burial plot. 

Burial plots range in price vastly across the UK. A reason why funeral plans do not include these. 

They can cost from a few hundred pounds, to thousands of pounds depending on where you will be buried. 

The funeral director will be able to help you arrange a suitable burial ground.

How does an over 50s plan work?

Other than to pay for a funeral, an over 50s plan could;

  • leave behind an inheritance for loved ones
  • clear any outstanding debt in your name 

An over 50s plan guarantees a lump sum pay-out to your family when you pass away.

Much like with a funeral plan, the application is straight forward as you do not need to provide any medical information. 

Due to this unknown risk to the insurer, the sum assured offered tends to be less than with other types of life insurance policies. 

However, you can still achieve up to £25,000 with an over 50s plan. 

You’re also guaranteed to be accepted if you are a UK citizen and between the ages of 50 and 85. 

Continue reading to learn about the cost of n over 50s plan, the benefits and the drawbacks. 

What are the benefits?

Achieve a higher sum assured

The closer you are to 50, the more likely it is you’ll be able to secure a higher sum assured (up to £25,000). 

However, at any age it is worth comparing different over 50s plans, as each insurer has a different underwriting process and their rates will vary. 

It is also important to ensure you can afford the monthly premiums for the level of cover chosen, particularly if you are approaching retirement age. 

Missing monthly premiums will risk losing your investment (as we discuss later on).

Funeral Benefit Option

How about the best of both worlds? You could opt for an over 50s plan to come with a funeral benefit option. 

This is when the proceeds from your life cover go directly to a funeral director. 

The funeral director is usually specified by the insurer with whom you arrange your policy.  

They will arrange your funeral with your family when the time comes.  

Although, this is still a life insurance policy and your investment will not protected from the rising cost of funerals. 

Family spend the pay out as they wish

Funeral plan funds are paid directly to the funeral director when you pass away to carry out the funeral. 

But an over 50s plan provides flexibility for your family who may decide the funds are needed in other ways. 

If you have a trustful family member or beneficiary who is capable to take charge of the policy when you pass away, then relinquishing control to them may provide some peace of mind. 

This can be done officially by writing your life insurance policy in trust…

Write your life insurance in trust

To write your over 50s plan in trust means signing your policy over to a trustee to manage the pay-out when you die. 

It also detaches the proceeds of your policy from your estate, meaning you could pay less inheritance tax (which is 40% on everything over £325,000). 

Writing your policy in trust also means your family won’t need to wait for the probate process, which can take up to 12 months, so the funds are available quicker to pay for your imminent funeral. 

What is the cost of an over 50s plan?

Over 50s plan premiums are calculated by your age and the amount of cover you need. 

Premiums for an over 50s plan may work out more expensive than other policies, due to the unknown risk you pose to the insurer. 

Without any medical information, the insurer is unable to assess the likelihood you’ll make a claim. 

However, the amount of cover may be decreased to reduce premiums to an affordable level for you.  

Some insurers will take into account your smoking status when assessing your over 50s plan application. 

As mentioned, comparing over 50s plans from multiple insurers will help you find the most suitable policy at the best price for you. 

The drawbacks of an over 50s plan

If you think that an over 50s plan may be more suitable for you than a funeral plan, then there are few things to take into account before making a final decision. 

Insurers implement a waiting period

Depending on the insurer, you may have to wait for a period of 12 or 24 months from the start of your policy before the protection becomes effective.  

If you were to pass away of natural causes during this time, a full pay-out will not be issued. However, accidental death is covered during this period. 

Some insurers will make a pro-rata pay-out if you did pass away during this period, which is usually the amount of total premiums paid. 

This may be something to bear in mind if you are in poor health, or at the higher end of the age bracket. 

You could pay more into an over 50s plan than you get back

Depending on the age you take out the policy and how long you live, there is the possibility you could pay more into the policy than what you eventually get back. 

However, some policies will stop premiums payments after a certain age, such as on your 90th birthday.  

You must stay on top of your premiums

Most life insurance providers will offer a cancellation period of the usual 30 days. 

However, after this period if you decide to cancel the policy or if you miss any payments, your cover will come to an end and your premiums will not be refunded. 

Learn more about life insurance 

There are other life insurance options, particularly if you are in good health.

You may find the cost of premiums for an over 50s plan are typically higher than those of a standard life insurance policy. 

This is because your health and other factors, that could potentially reduce your premiums, are not taken into consideration. 

If you are in good health, and a non-smoker, then you could secure a much higher pay-out with a whole of life insurance policy. 

You can use a whole of life policy to cover your funeral, plus leave behind an inheritance and/or contribute to family livings costs.

You are not limited 

It’s possible to take out both a funeral plan and an over 50s plan, if your budget allows.  

This way, the benefits of both are combined.  

You’ll have control over the funeral plan funds and funeral arrangements, plus you’ll avoid rising funeral costs, and you’ll also leave behind some cash for your family to enjoy as they wish. 

Still undecided?

The decision really comes down to what your focus is for the investment, and of course – your budget. 

Either way, both options will provide financial support to your family at a time they may need it most. 

It’s just really important to compare multiple funeral plans and over 50s plans first, before making any final decisions.  

This can be done manually online via a comparison website or by using a broker (to search for the best policies on your behalf).

This article was written by award-winning life insurance broker; Reassured Ltd.

References

* https://www.sunlife.co.uk/siteassets/documents/cost-of-dying/cost-of-dying-report-2018.pdf

https://www.funeralguide.co.uk/help-resources/arranging-a-funeral/buying-a-burial-plot