Inflation-busting increases in the cost of funerals are leading more people to explore ways to cover these future expenses. Although not normally a mainstream area of financial advice, proposals to regulate funeral plans, coupled with the variety of planning options available, mean there are chances for advisers to get involved.
Funerals are certainly expensive. The average cost of a basic funeral is £4,078 according to SunLife’s Cost of Dying Report 2017, with discretionary extras such as the memorial, flowers and the wake adding a further £1,928 to the average bill.
Increases in these costs are particularly concerning. The report found that the cost of a basic funeral had increased by 4.7 per cent over the past year, and by 112 per cent since SunLife started tracking prices in 2004.
Prepaid plans
Given these costs, there are plenty of different products available to help consumers plan ahead. Funeral plans are available to guarantee that future costs are covered, regardless of how long the policyholder lives and how much prices increase.
These are available from insurance companies such as SunLife and Royal London, but also directly from funeral directors and other intermediaries. Although some of these plans operate on a monthly premium basis, with the option to be paid up at the end of a set term or age, those offered through funeral directors also accept single payments or a deposit followed by 12 monthly instalments.
As examples of the costs, a 65-year-old taking out a plan with Royal London would pay £39.82 a month for a cremation plan; £41.26 for a burial plan; and £17.41 for a direct cremation plan, which excludes a traditional funeral service. Premiums would cease at the plan anniversary following their 90th birthday.
Opting for a plan from a funeral director gives more options on payment. For instance, one of the leading providers, Golden Charter, offers a range of four plans. Single payments vary from £2,895 to £4,099 depending on the type of funeral required. Monthly premiums are also affected by the length of the term selected. For example, the company’s Standard plan costs £16.45 a month over a 30-year term, rising to £149.64 a month for a two-year term.
Insurance options
Life insurance, and over-50s plans in particular, are also frequently marketed as providing cover for funerals. For example, Royal London’s over-50s plan has premiums starting from as little as £3.95 a month, which would provide a 50-year-old with a sum insured of £1,098.
To achieve a payout closer to the amount required to cover average funeral costs, a premium of £14 a month would give a 50-year-old an insured sum of £4,958. As with the insurer’s funeral plan, premiums cease at the plan anniversary following the policyholder’s 90th birthday.
Whether opting for an over-50s plan with guaranteed acceptance, or a fully underwritten whole of life plan, Ian Smart, product architect at Royal London, says there is a key difference between these and the prepaid plans. “Unlike the prepaid plans that guarantee to cover the funeral costs, life insurance pays out a fixed amount,” he explains. “This means cover needs to be reviewed on a regular basis to ensure it keeps pace with funeral costs.”
