If you’re thinking about making financial arrangements for your funeral, you may be considering two common options – a prepaid funeral plan or an over-50s life insurance policy.
Both involve paying money now with the future in mind, but they work in very different ways:-
A funeral plan is designed to provide specified funeral services. Over-50s life insurance is designed to provide a fixed cash payout, subject to the policy terms.
Understanding that distinction can help you decide which option best suits what you want to achieve.
What is a prepaid Funeral Plan?
A prepaid funeral plan allows you to choose and pay in advance for specified funeral services.
Depending on the plan you choose, these could include collection and care after death, a coffin, cremation fees, an attended or unattended cremation, a funeral service, hearse, bearers and other services.
Rather than leaving behind a pot of money intended to pay for a funeral, you’re purchasing the funeral services described within your plan.
At Funerals with Grace, for example, our plans range from a simple unattended direct cremation to a more traditional attended funeral.
What is Over-50s Life Insurance?
Over-50s life insurance works very differently.
You choose a monthly premium and, subject to the policy terms, a fixed cash sum is paid when you die. Typically, there are no medical questions, although eligibility and terms vary by provider.
The cash payout isn’t necessarily earmarked for a funeral. Depending on how the policy is arranged, your loved ones may be able to use the money however they wish.
That flexibility can be useful if your main objective is simply to leave a cash sum behind. But if your intention is specifically to pay for your funeral, there are some important differences to consider.
Will over 50s Life Insurance cover the whole funeral?
An over-50s policy provides a fixed cash payout rather than specified funeral services.
SunLife, for example, states that their Guaranteed Over 50 Plan is not guaranteed to cover the full cost of a funeral and that inflation will reduce the buying power of the fixed cash sum over time. This creates an important contrast between:
“I’ve left some money that could be used towards my funeral.”
and:
“I’ve paid in advance for the specified services for my funeral.”
Could you pay more into Life Insurance than it pays out?
Perhaps, depending on the policy and how long you live.
With some over-50s policies, premiums can continue for many years.
SunLife currently states that customers pay their monthly premiums until death or the policy anniversary after their 95th birthday. It also warns that customers could pay in more than the eventual cash sum paid out.
For example, someone paying £20 a month for 30 years would have paid £7,200 in premiums. That doesn’t necessarily mean their policy would pay £7,200. Their eventual cash benefit would be the amount specified by their particular policy.
A prepaid funeral plan works differently.
How long do you pay for a Funeral Plan?
Funeral plans have a defined price and payment arrangement.
At Funerals with Grace, you can pay for your plan in full or spread the cost over 12, 24, 36, 48 or 60 months.
There is no instalment charge when paying over 12 or 24 months.
For payment terms of 36, 48 or 60 months, a 6.5% per annum instalment charge applies after the first 24 months, and is spread across the chosen payment period.
Once you’ve completed the agreed payments, you don’t continue paying indefinitely, and the specified funeral services in your plan remain provided under its terms.
Who arranges the funeral?
If you have a life insurance policy, your loved ones will be responsible for finding and appointing a funeral director when you pass away. Most life insurance policies require a death certificate before they pay out, which can mean some funeral costs must be paid before a life insurance payment is received. This can mean your loved ones need to find the money up front at a difficult time.
With a funeral plan, your plan provider will normally support your family and arrange the funeral you have paid for. One call starts the process; your funeral plan provider will arrange for a trusted partner to collect you and take you into their care, where you’ll rest until it’s time to go to the crematorium.
However, this is where funeral plans differ: not all funeral plans include everything needed when the time comes, such as cremation fees, collection from home, or hand delivery of ashes. With Funerals with Grace, all our plans include 24-hour collection from anywhere in the mainland UK, removal of medical devices or an oversized coffin (if needed), cremation fees, and return of ashes, so you can have peace of mind that everything is taken care of.
What happens if funeral costs rise?
This question highlights an important difference between the two options.
With over-50s life insurance, the benefit is normally a specified cash amount. If funeral costs increase significantly over the years, the payout doesn’t necessarily increase alongside them.
With a prepaid funeral plan, you’re purchasing specified funeral services.
Once a Funerals with Grace plan has been paid for, those specified services will be provided when they’re needed in accordance with the plan terms, regardless of how the cost of providing those particular services changes in the future.
This doesn’t mean every conceivable funeral expense is covered. Optional extras or services outside your plan may still need to be paid for separately.
Always check exactly what is and isn’t included.
Key Differences – At A Glance
Prepaid Funeral Plan
- Purchases specified funeral services
- Designed specifically for your funeral
- Has a defined payment period
- Specified services remain covered under the plan terms
- Helps you make some funeral arrangements in advance
- The value cannot simply be spent by family on something else
Over 50s Life Insurance
- Provides a specified cash benefit
- Cash may potentially be used for other purposes
- Premiums can continue for many years
- You could pay in more than is eventually paid out
- A fixed payout may not meet the eventual cost of a funeral
- Does not arrange the funeral itself
What happens if you die before your funeral plan is paid for in full?
This is important if you’re spreading the cost of a prepaid funeral plan.
If you die before making 24 monthly payments, your family can pay the difference between the amount already paid and the plan’s outstanding balance.
Once you have made 24 monthly payments, our moratorium protection applies.
For example, if you were paying over five years and died after making your 25th monthly payment, your family would not have to pay the remaining plan balance for the specified funeral services to be provided, subject to the plan terms and conditions.
Over-50s insurance policies can also have qualifying periods, so check the individual insurer’s terms carefully.
What are the benefits of Over 50s Life Insurance?
It would be misleading to suggest that a funeral plan is automatically the better choice for everyone. Over-50s life insurance can provide a cash sum rather than restricting the benefit to funeral services.
That may suit someone whose priority is to leave their family some money when they die. It can therefore offer greater flexibility over how the eventual payout is used.
What are the benefits of a prepaid Funeral Plan?
A prepaid funeral plan may be more appropriate if your priority is to arrange and pay for your funeral in full before you die.
It can allow you to:
- Choose the type of funeral you want
- Pay for specified services in advance
- Know what services will be provided
- Make some of your wishes clear
- Complete payments within a defined period
- Reduce the number of funeral arrangements your family needs to make.
Rather than relying on a future cash payout to cover the cost of the funeral you want, you can purchase the specified funeral services in advance.
Are Prepaid Funeral Plans and Over 50’s Life Insurance Regulated?
Yes, both are regulated financial products, although they are different products and the protections applying to each are not identical.
The Financial Conduct Authority (FCA) has regulated prepaid funeral plans since July 2022. Always check that a funeral plan provider is appropriately FCA authorised before purchasing. Eligible funeral plan customers may also have protection through the Financial Services Compensation Scheme (FSCS) if an authorised provider fails, subject to FSCS rules and eligibility.
You should similarly check the regulatory status, terms and protection arrangements of any insurance provider you’re considering.
Can you have both?
Absolutely.
A funeral plan and life insurance don’t necessarily have to be alternatives because they can serve different purposes.
Someone could have a funeral plan specifically for their funeral arrangements while also having life insurance intended to leave money to their loved ones.
Which is right for you?
Start with the outcome you’d like to achieve, not the product itself.
If your priority is: “I want to leave a cash sum that my loved ones can use flexibly,” Then an Over-50s life insurance policy may be worth considering.
But if your priority is: “I want my funeral arranged and specified funeral services paid for,” Then a prepaid funeral plan may more closely match what you’re trying to achieve.
Compare the terms, look at the total amount you could pay, understand what happens if you stop paying or die early, and check exactly what is guaranteed.
Most importantly, understand whether you’re buying money that could be used towards a funeral or the specified funeral services themselves. While those two things may sound similar today, they could be very different many years from now.
At Funerals with Grace, our funeral plans are designed specifically to provide the funeral services set out within your chosen plan. Our team can explain what’s included, how our payment options work and answer your questions, so you can decide whether a funeral plan is right for you.
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