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It’s never pleasant to consider death – but as a nation it’s a subject we’ve avoided discussing for many years.
Increasingly however families are finding themselves in financial trouble and emotional turmoil as a result of this lack of discussion.
In this article we discuss the importance of pre paid funeral plans and funeral plans – and explain how you can ensure you can provide for the cost of your funeral now.
Studies have shown that funeral costs are rising considerably year on year. Over the past nine years the price of an average funeral has risen by six per cent each year.
This means that in 2000 the cost of a funeral was around £1,500 to £2,000 – but it has now inflated to almost £6,000 in some places. Funeral costs also depend on where you live. Geographically the difference can be as much as £2000.
The term ‘funeral costs’ refers to all elements involved in a funeral. Whilst often people mistakenly believe that they need to save only for a ceremony and casket, they forget that burial, cremation, venue hire and legal matters also need to be taken care of.
Funeral plans are an effective way to ensure you and your family have peace of mind. They enable you to set aside money either in the form of a lump sum or monthly payments to put towards or fully cover your funeral costs. So what are funeral plans, which different types are there to choose from, and which one is best for you?
A pre paid funeral plans are a type of insurance policy that enables you to pay upfront in advance for your funeral.
This is either with a lump sum (which is then invested securely or taken care of by your insurance company) or fixed monthly payments. Pre paid funeral plans can also be obtained directly from some funeral directors.
Prepaid funeral plans cost between £3,000 and £5,000. For this reason many people choose to pay in instalments. Companies often allow you to stretch these between 6-12 months, or for up to 25 years depending on the cost and type of plan you have taken out.
Most providers of prepaid plans also enable you to arrange and plan your funeral – from flowers and music to location and transport. Understandably this offers peace of mind for your family – and from a personal perspective it also allows you to ensure your last wishes are carried out without a hitch.
It’s important to note that pre paid funeral plans may not always cover the full cost of your funeral. Depending on your wishes, what’s included and inflation, your relatives may find that they need to top up the fund either from your estate or from their own pockets.
The most significant benefit of pre paid funeral plans is peace of mind. The death of a loved one is always difficult and incredibly upsetting. Financial distress is something that many families simply don’t plan to suffer with.
This is one of the main reasons that individuals take out pre paid funeral plans in old age. They want to ensure that their family don’t have the hassle and stress of organising or raising funds whilst they are grieving.
The second benefit is personal preference. Pre-paid funeral plans ensure you’ll have the funds (either partially or fully) to have the send-off of your choice. Some providers offer a guarantee to cover the rising cost of funeral plans, effectively ‘fixing’ your funds to enable you to pay for the funeral you want at today’s prices.
It’s unfortunate and difficult for relatives when they cannot afford to pay for the funeral their loved one would have wished because appropriate arrangements haven’t been made.
Lastly from a financial perspective pre-paid funeral plans could reduce inheritance tax – as the money has been invested prior to your death. Without a plan in place relatives would need to use funds from your estate, which may be subject to tax.
As with all insurance policies of this kind, there are some drawbacks associated with prepaid funeral plans. The first is that you are providing funds upfront which you may need elsewhere. For example, if you can’t fully cover the cost now and dip into savings, you may find that you don’t have funds to cover the cost of residential care.
As above, you also need to remember that prepaid funeral plans won’t always cover the full cost of your funeral. Most plans don’t include funds for every aspect – for example, the procession and church service may be covered, but the cost of burial plots or cremation are left out.
Extra details such as flowers may also be classed as additional items. For this reason it’s important to carefully consider whether the plan will provide the funeral you want – and whether it’s a cost-effective option for you.
Additionally, prepaid funeral plans are not suitable for anyone who could die imminently. Prepaid funeral plans are long-term investments – designed to mature over time or be paid in instalments over the course of one or more years.
Most plans state that if you die within one or two years of having taken out your policy, they will not be able to honour the plan. In this instance your money is refunded to your estate – but it is unlikely to cover the cost of your funeral.
Even if you don’t fall within this limit, if you die before you have paid for the plan your relatives will need to pay the remaining balance before your funeral can be arranged, or cancel the plan and obtain a refund.
You should also consider your personal financial situation. If you think you may run out of funds to pay for your monthly fee (either because you are paying for care, or have used up your savings) then the plan will be cancelled. Most companies have a cancellation policy and fees attached. For this reason it’s key to consider the future carefully before taking out a plan. If you change your mind within 30 days most providers will enable you to cancel without charge.
It can get very confusing, very quickly, when you are trying to work out what the best type of funeral payment plan is the best option. Therefore, we can help you navigate through this complexity and help you find the best deal. Just leave your details below, and we will be in touch to help you.
Funeral bonds are essentially a type of investment. Like pre-paid funeral plans they effectively ‘fix’ the cost of your funeral, so you don’t need to worry about rising prices year on year. They also offer peace of mind for you and your relatives.
Funeral bonds are effectively an investment savings account – except they have guaranteed capital. This means you will not end up with less than you have paid in once the policy finishes.
Funeral bonds are slightly different than pre-paid funeral plans in a number of ways. Firstly, they’re flexible. You open an account with a fixed amount (usually £500 or more), then top it up whenever you wish. Most providers do also offer a monthly payment plan, so you can choose to make fixed regular payments if you wish.
Funeral bonds also offer flexibility when it comes to choosing a funeral provider. Whilst pre-paid funeral plans often stipulate who arranges your funeral upon death, your funeral bonds provider may not. This means your family are free to choose how they spend the money – as long as it is put towards funeral costs.
There are also tax benefits associated with funeral bonds. Often these investments won’t affect your pension or means-tested benefits and won’t be counted as assets. And like pre-paid funeral plans you won’t lose the money to inheritance tax.
When deciding whether funeral bonds are for you there are a few key things to consider. The benefits are numerous – but there are also a few drawbacks. For example, like pre paid funeral plans you’ll need to invest a considerable amount of money either now or over the next few years. Additionally this money isn’t guaranteed to meet your funeral costs.
In fact, this is more of a risk with funeral bonds, as although prices are fixed you could still find that you can’t fully afford the services of your chosen funeral provider. You’ll also need to carefully consider prepaid funeral plans and weigh up the pros and cons of each option. You may find that a funeral plan may better suit your requirements and preferences.
Often people feel the need to choose between funeral bonds and regular savings. On paper, they can appear similar. The benefits of these types of schemes over savings involve the tax relief implicated (as detailed above). However these funds also have greater potential to grow compared with relatively paltry interest rates. You may also reach your tax-free savings threshold if you are saving for other things. If this is the case then
Here is a useful video comparing funeral bonds and pre-paid funerals.
When considering funeral payment plans there are several things to consider. Firstly think about your budget. How much do you have to spend? Do you have sufficient funds to make a lump sum payment, or would you prefer to pay for the plan in instalments?
Secondly weigh up the pros and cons of the providers you’re considering. Each plan is different – and although it may appear complicated you will need to carefully read the details to know what is included. If you need assistance ask a trusted friend or family member to help you make sense of it all.
Whilst it may seem unpleasant to consider every detail of your funeral and treatment after death, it’s important to get this right now. Some funeral payment plans enable you to change your chosen arrangements once they have started, but often this incurs an additional fee.
There are lots of providers – these can be large national companies, or local independent funeral directors. Which you choose depends on your personal preferences and situation – on which will deliver your desired result on your death.
Budget is also a factor – but it’s important to remember that you are looking for value for money – not the cheapest or most expensive.
It’s worthwhile taking a look at some independent reviews before you make your final choice. Make a shortlist, then see what others who have used the company in the past say about them.
You should also discuss funeral payment plans and the options you have available to you with close relatives. They’ll need to be aware of any arrangements you’ve made and your financial situation. This should naturally include the executor of your will, as they will be responsible for arranging the release of your funeral plan funds upon your death.
Family members can also offer practical and emotional support as you plan your funeral. It’s understandably a difficult thing to consider – and having support will enable you to make a clearer, more informed decision.
The Funeral Planning Authority (FPA) regulates providers of funeral payment plans. If your insurance company or provider is FPA registered this is a sign of accreditation, but it also protects you should you have a dispute or issue with your provider.
If you’re unsure about funeral payment plans you can always opt to simply invest money in a savings account to pay for your funeral. However this still means that your family will need access to your estate after you have passed away – so you’ll need to ensure that your will is clear and comprehensive.
For more information on prepaid funeral plans you can take a look at the Age UK website or contact your local Citizens Advice Bureau for further guidance. If you’d like to consider other options or need help with financial planning for care then why not take a look at our blogs and guides?
At UK Care Guide we’re dedicated to providing clear, comprehensive information for families and individuals considering later life financial planning. For more details on what to consider and how to protect your assets please head over to our dedicated financial pages here.