With the rising cost of funerals in the UK, funeral cover and life insurance products are an increasingly popular way of ensuring that you and your family can manage the cost of losing a loved one.
But, with so many options to choose from, it can be hard to decide which product is right for you - a funeral plan or life insurance.
We’ve created a guide to help you understand how each plan works so that you can make the right choice for your family.
So, what’s the difference between life insurance and a funeral plan?
The purpose of a life insurance policy is to ensure that your dependents are provided for in the event of your death. With many life insurance policies, you will choose the amount of money you wish for your beneficiaries to receive when you pass away and pay fixed monthly instalments either up until your death or until you reach a certain age.
This is often paid in a cash lump sum, and your beneficiaries can spend this money on whatever they wish. Many life insurance policies are used to cover or contribute towards funeral costs, such as the funeral service.
Whereas a pre paid funeral plan will cover the cost of your funeral in advance, fixed at today’s prices. You have the option to pay either a lump sum or in monthly instalments over a set term. A plan can cover just the cremation, such as Avalon's simple Cremation Only Plan, or you can purchase a plan which includes a funeral service (compare our plans). It totally depends on the plan you choose.
What are the benefits of a funeral plan vs life insurance?
There are several benefits to choosing a funeral plan, either in combination with or instead of a life insurance plan:
Make your arrangements in advance
Talking about your funeral plans with loved ones can sometimes be a challenge. With a funeral plan, you can make all of the decisions about your future, without having to worry that your wishes may not be fulfilled. This way, you can create a service that is specific to you. It also means that you can arrange every aspect if you choose, to safeguard that your family don’t have to worry about ensuring your send-off is exactly how you would have liked.
No medicals or health checks
Some life insurance providers have requirements which must be met in order to be eligible for a policy or offer you their lowest premium price
Life insurance can require a detailed health check and the age of the policyholder is also significant in the application process. If you’re over fifty, a smoker, or in bad health - the price of your monthly premiums can increase dramatically.
By comparison, prepaid funeral plans have little or no qualification requirements, aside from being over the age of eighteen (some providers require you to be 50+). As essentially, you’re simply purchasing a funeral in advance, fixing the cost at today's prices.
Speed of your payout
When the time comes, insurance gives your loved ones a cash lump sum. But it could take anywhere from several days to several weeks, or even months, to process and transfer the money – especially if there are complications.
That means that in order to get the funeral arranged in a timely manner, your loved ones may need to use their own savings to pay for the funeral until the policy pays out.
However, a funeral plan makes this simpler because the funeral costs are already covered. Once your plan is fully paid, you can rest assured that everything will be taken care of. There’ll be no need to wait for a pay out to arrive because all the arrangements are already planned and paid for.
Security of a funeral plan
With a funeral plan provider like Avalon, any money is kept in an independent trust regulated by the Funeral Planning Authority. However, this isn’t the case for all funeral plan providers, so, it’s important to do your research, ensure your provider is Funeral Planning Authority (FPA) regulated, and check an unbiased source such as Trustpilot
As well as this, Avalon offers the ‘Avalon Promise’, if you pass away before your plan is fully paid, Avalon can still provide all the services outlined in your plan. We’re the only provider that works with local independent Funeral Directors to offer this security.
Whereas life insurance can present the issue of a time frame. For example, if you die within 18 months of taking out the policy, your family may only receive a refund of your premiums rather than the benefits agreed in your policy, so check your small print carefully before signing up.
Should you find yourself in a situation where you need to cancel your life insurance policy, it is highly unlikely you will receive any refunds on the premiums you have paid in (check with your provider). Should you need to cancel a funeral plan, you will usually receive a full refund, minus a cancellation charge.
A funeral plan also offers your family security. It ensures that your family are not responsible for any of the essential costs after you pass. Allowing your family to grieve without worrying about paperwork or the financial burden of a funeral.
Over-50s life insurance vs a funeral plan
When looking at a funeral plan, you might also consider over-50s life insurance to leave your loved ones a cash gift. While over-50s plans can be a good investment, depending on the terms or your policy and how long you live for, some customers may find themselves paying much more in than the cash sum their beneficiaries receive.
As well as this, a funeral plan is simply paying for your funeral up front, or just spreading the cost of the payment. This means you know exactly what you’re paying over a fixed period of time. There are no variables or interest to worry about.
Life insurance does offer some benefits over a funeral plan. A life policy gives your beneficiaries a cash lump sum which they can spend on whatever you or they wish, such as a holiday, paying off a mortgage or putting money away for a grandchild's future. The funds in a funeral plan are solely to be used for your funeral costs and are paid directly to your funeral director.
Life insurance providers must be registered with the Financial Conduct Authority (FCA), ensuring high levels of service to their customers. At present, funeral plans are not regulated by the FCA, but reputable providers voluntarily register with the Funeral Planning Authority (FPA), an independent body which monitors high standards of conduct within the industry and makes sure your money is safe.
If you are looking to purchase a funeral plan, always ensure your provider is FPA registered.
So, how does a funeral plan compare to life insurance?
- Freezes your funeral costs at today’s prices
- Money you have paid in can be refunded, minus a cancellation charge
- Can be paid in a lump sum or monthly payments
- Payments stop when your plan is fully paid
- You can usually transfer your plan to a loved one if they pass away before you do
- No health or medical checks
- Your funeral wishes and personal requests recorded and taken care of by Funeral Director
- One call by your next of kin and our team will take care of all funeral arrangements included in your plan
- Range of funeral plan options to suit your needs and budget
- If plan includes the Avalon Promise, we can cover the full cost of your plan if you pass away before it is fully paid
- Funds can only be used for your funeral, no money will be left to your beneficiaries
- Industry is not regulated, although reputable providers are registered with the Funeral Planning Authority
- Choose a lump sum amount you would like to leave to your loved ones
- Money can be spent however you or they wish
- Regulated by the Financial Conduct Authority
- Depending on the amount of cover you select, monthly premiums can be cheaper than a funeral plan
- Money you have paid in usually will not be refunded if policy is cancelled
- Pay-out may be significantly less than your agreed lump sum if you pass away within a short time of policy being taken out. Check your small print
- You may pay in more than you get out
- Non-transferable if a loved one passes away before you do
- Not guaranteed to pay out immediately after death, especially if there are complications
- Premium prices depend heavily on your age, lifestyle and health. Health / medical checks may be necessary
- Premium prices may fluctuate if interest rates rise or fall
- If being used to pay funeral expenses, may be more expensive than freezing costs at today’s prices. Funeral costs are expected to rise in future years.
- The lump sum benefit will not usually be protected from inflation so inflation is likely to reduce the value of the benefit in the future
As you can see, there are a number of benefits of purchasing a funeral plan over life insurance You can use life insurance to cover funeral costs, provided your lump sum is substantial and your family have money put aside to cover any time delay between paying for the funeral and the insurance payout.
But selecting an Avalon funeral plan means that, when the time comes, your family have the peace of mind that the essential costs of your plan and your personal requests are taken care of.
Whilst life insurance is important, it doesn’t offer your family any support with the funeral arrangements, whereas an Avalon funeral plan ensures that your family have one to one support from not only the Avalon team but a funeral director local to you. Which means that your loved ones are offered all the help and guidance that they might need.
Looking to find out more about how you can fix your essential funeral costs and give your family peace of mind with an Avalon Funeral Plan? Get your free quote or speak to our friendly team on 0800 014 9112.
About the Author: Charlotte Moore is a writer and journalist based in Manchester. She has over 4 years' experience writing within lifestyle, technology and finance. Find her at www.girlonfilm.co.uk and Studio Sonder