Planning your own funeral, while difficult for most of us, can help ease the emotional and financial burden for your survivors at a stressful time. But should you pay in advance for your funeral?
Prepaying for funeral expenses – a cemetery plot, service, coffin or headstone – has its benefits, but as with many financial purchases, one should explore the options carefully before deciding.
Prepaying can provide:
Reassurance for you and your loved ones that the funeral is taken care of.
A guarantee that you get what you want, such as the coffin or type of service. This is especially true of a cemetery plot, as the location you desire today might not be available in 10 or 20 years.
It is widely believed that that arranging and paying for a funeral in advance tends to result in lower cost, versus waiting until death when family emotions may drive decisions. In short, you are paying for tomorrow’s funeral at today’s prices.
But, it is important to remember that prepaying carries some risks:
There have been incidents of funeral service directors going bankrupt or embezzling funds that were aside to pay for funerals. Funeral Plans are not regulated products under the Financial Conduct Authority (see more below).
What if you move and want to be buried somewhere else, or you decide later to use another funeral home? Does the plan allow for a full refund or can the funds be transferred to another funeral home? Often you will have to pay an administrative or penalty fee for the right to transfer or cancel a funeral contract.
Prepaying doesn’t always guarantee that all future funeral expenses will be covered. For example, inflation for some funeral expenses not controlled by the funeral home, such as flowers or obituaries, may outstrip the agreed prepaid price. Thus, your loved ones either pay the difference or substitute something less expensive.
You may be tying up funds that you might need between now and then for emergency purposes.
If you decide to prepay, you may have several options to choose from.
First, the funeral home you wish to use may have established a link to a financial institution offering a plan they feel is suitable.
A second arrangement is a permanent life insurance plan (like an over 50’s insurance plan). The funeral home may be named as beneficiary, though not in all cases.
Another option is to simply set up your own bank / investment account – earmarked for funeral expenses. This would involve pricing the current expenses for the funeral you want (detail the service for your loved ones) and invest that amount. This arrangement gives you more flexibility should you move or change plans; however, it can’t guarantee, as do the other options, that your loved ones will spend the money as you wish.
How do funeral plans work?
If you decide to prepay a funeral home or via and insurance plan, you pay either a lump sum or instalments to the plan provider, or to a funeral director. Your money is either invested:
Into a trust fund with trustees, or
In an insurance policy, which is then used to pay for the funeral whenever that turns out to be.
The aim of both methods is to safeguard your money until it is needed, ensuring that it is used to provide the funeral you have paid for.
How secure is my money?
The Financial Conduct Authority (FCA) doesn’t regulate funeral plans covered by insurance or trust arrangements. It does however stipulate rules for each method of investment, so sums paid by the customer are safeguarded and available to pay for the funeral when needed.
If you are paying for your funeral bill upfront, you could consider paying part of it on your credit card. When you pay with your credit card, you benefit from Section 75 of the Consumer Credit Act. This means you can get extra protection if things go wrong with the funeral director.
You could also get this protection if you were to pay at least £100 of the funeral bill upfront, and then pay off the rest of the balance in monthly instalments.
Questions to ask the funeral directors or plan provider
What exactly is included in the plan and what potential costs are not?
Could there be any other expenses for the funeral, and what happens if there are?
Is it possible to cancel the plan if circumstances change, for example if you arrange your spouse’s funeral but you later separate?
Are there any cancellation charges?
Does the plan allow you to choose the funeral director?
What if your chosen funeral director goes out of business?
What happens if the person the funeral is intended for dies abroad or away from home?
Can the funeral director arrange a funeral of a different standard from the one you have chosen?
If you pay by instalments, how long do you do this for and do you have to pay interest?
What happens if there are outstanding instalments at death?
What freedom do you have to change the details of your funeral plan?
How will the funeral planning company know about the plan holder’s death?
We hope you find this of use, however, if you have any questions or would like to discuss this further, please do contact us.