One of the ways to save for a funeral is to take out life insurance – sometimes known as funeral insurance – with a reputable company. In this article we answer some of the most common questions about funeral insurance.
What is funeral insurance?
Funeral insurance is a life insurance policy taken out with the aim of leaving your family enough money to cover the costs of your funeral. Some insurance providers specifically call it funeral insurance, others call it Over-50’s life insurance.
Whatever the product name, you will make monthly payments for your insurance, and when you die your family will receive a fixed cash amount. In most cases this cash amount can be used however your family wishes, for example to help with other bills and debts as well as – or instead of – paying for your funeral. However, if you specifically want your funeral costs to be covered, there are some Over-50’s life insurance policies that enable the cash amount to be paid directly to a chosen funeral director to cover the cost of your funeral.
What are the advantages of funeral insurance?
The main advantage of funeral insurance is that it provides a financial payout to your family when you die, and they can use this for any purpose you choose, including funeral expenses, debts, or any other pressing financial needs.
You can also spread the cost of funeral insurance via monthly payments, and have the reassurance of knowing that there will be a fixed payout to your loved ones when the time comes to claim on the plan.
Are there any drawbacks to funeral insurance?
There are a few potential drawbacks with any kind of insurance, and funeral insurance is no exception to this. For example:
- Your insurance premiums may increase with inflation, which will make your insurance policy more expensive year on year.
- Despite increasing premiums, if the final payout does not also increase with inflation its relative value will decrease and there may still be a shortfall when it comes to covering funeral costs.
- You may end up paying more in premiums than the final policy payout, especially if you live longer than expected.
- Some funeral insurance policies stop cover if you miss a payment.
- Some insurers take a while to process a claim, so the payout from your policy may not be available to the family as quickly as they ideally need it.
- The payout from your funeral insurance will be treated as part of your estate, which will count towards the threshold for inheritance tax.
What happens if I die soon after taking out funeral insurance?
Most funeral insurance providers have a “moratorium period” – usually two years – from the start of the policy, during which they will not pay out the full cover amount. This means that if you were to die within those 2 years after taking out the policy, your family would not receive the total payout sum.
Most insurers would instead make a partial repayment equivalent to the value of the premiums you have already paid. However, some will pay the full amount if you have died through an accident rather than natural causes. Again, it is important to check the small print when taking out an insurance policy so that you fully understand what is and is not covered.
Who offers the best funeral insurance?
Many insurance companies offer Over-50’s life insurance or funeral insurance. Leading UK insurers in this field include SunLife, British Seniors and OneFamily. It’s important to take time to compare terms and conditions, payout guarantees, premiums and moratorium periods before signing up. Also ensure that the company is authorised by the Financial Conduct Authority (FCA) to offer you protection should anything go wrong.
Does funeral insurance work or is it better to have a funeral plan?
Funeral insurance can be a good option if you bear in mind the potential drawbacks mentioned above. But if you would prefer the peace of mind of knowing that the cost of your funeral is covered regardless of inflation or other economic factors, a good alternative could be a pre-paid funeral plan.
Martin Lewis (founder of MoneySavingExpert) explains the difference:
Funeral Plans
- Lock in today’s prices: You pay now or over a short time, and your family won’t have to worry about rising funeral costs later.
- Best if paid upfront or within 2 years: Paying quickly means you avoid extra interest fees. Long payment plans (like over 20 years) can end up costing more than the plan is worth.
- Not the same as “over-50s” life insurance sold as funeral cover: Martin warns these are more like insurance, often expensive, and if you miss a payment, the plan might be canceled.
- Regulated, but read the details: Make sure you know what’s covered, if you can transfer the plan, and what protections you have.
Funeral plans are great if you can pay upfront or within a couple of years, want to lock in costs now, and avoid burdening your family later.
Life Insurance / Assurance
- Pays a cash lump sum to your family: The money isn’t specifically for a funeral—it can be used for anything.
- Payments can take time & no price locking: The payout might not come quickly, and it won’t protect against rising funeral prices. Missing payments can cancel your policy.
- Better for income or debt protection: It’s useful if you want to make sure your family can cover lost income or debts, not just funerals.
In short: Life insurance is flexible cash for your family, but it doesn’t guarantee funeral costs are covered or paid on time.
What Martin suggests:
- Choose a funeral plan if you want to lock in funeral costs now and can pay quickly without extra interest.
- Be careful with “over-50s” funeral insurance—it’s usually more expensive and risky.
- Choose life insurance if you want to protect your family financially in a broader way (like income replacement), but know it’s not specifically for funerals.
You can read further information about funeral insurance vs funeral plans here. And for answers to questions about funeral plans, see our article Funeral Plans – Your Questions Answered.
For further support and guidance with any aspect of funeral care and planning, remember that With Grace is always here to help.
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