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Advice & Information on what to do after a death

Are Prepaid Funerals Worth It?

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Prepaid funerals offer a way to plan for the financial costs associated with a funeral and can provide significant benefits over ‘at point of need’ funerals. However, there is a lot to consider when deciding if this kind of investment is worth the money.

In this guide, we take a look at the rising costs of funerals in the UK and consider the pros and cons of prepaid funeral plans, both in terms of the economics but also other factors.

What Is The Current Cost of a Funeral in the UK?

The average cost of a funeral in the UK has risen from £2,733 in 2009 to £4,271 in 2018; an increase of 56% over a decade.

This figure covers the basic cost of either a cremation or burial and does not include discretionary costs such as flowers, limousine hire, catering and memorials. It is simply the price for the funeral itself including doctors, officiants and funeral director’s fees. It includes the cost of a casket, urn or coffin and the care of the deceased including preparation and transportation of the body. 

How Has the Cost of a Funeral Risen?

Rising steadily across the course of the last ten years, this table compares the average costs of both cremations and burials and shows the average year on year increase.

Year
Average Cost of Cremation
Average Cost of Burial
Average Cost of Funeral
Year on Year Increase
2009
£2,448
£3,018
£2,733 
-
2010
£2,546
£3,168
£2,857
4.54%
2011
£2,720
£3,462
£3,091
8.19%
2012
£2,863
£3,704
£3,284
6.23%
2013
£2,998
£3,914
£3,456
5.25%
2014
£3,199
£3,982
£3,591
3.89%
2015
£3,282
£4,104
£3,693
2.85%
2016
£3,437
£4,356
£3,897
5.51%
2017
£3,596
£4,561
£4,079
4.67%
2018
£3,744
£4,798
£4,271
4.72%

Source: ‘The Sun Life Cost of Dying Report 2018

According to the Office for National Statistics and data obtained from the composite price index, consumer prices in 2018 are 31.60% higher than prices in 2009 so some degree of inflation is to be expected in the funeral sector.

What Will a Funeral Cost in Future?

Using the current rates of inflation for 2019 and an average annual inflation rate of 2% over the next ten years, the average cost of a funeral could rise to as much as £5,165 by 2028.

Of course, there are many external factors which could affect the rate of inflation and the potential cost of a funeral over the next decade including GDP growth which is strongly linked to the UK’s economic position post-Brexit.

The bottom line is that the cost of a funeral in the future is largely unknown which is why some people consider that prepaid funerals can take the guesswork out of this important financial planning.

What is a Prepaid Funeral?

A prepaid funeral plan is basically a savings account which you set up directly with a specialist provider with the money paid into it being set aside specifically to cover costs associated with your funeral.

Some prepaid funeral plans require you to deposit a lump sum up front whilst others allow you to pay monthly instalments to save for the cost of your funeral.

As well as allowing individuals and families to prepare financially for their future death, an important element of a prepaid funeral is that you make some, or all, of the decisions now about how you want your eventual funeral to be planned.

What Do Prepaid Funerals Cover?

There are a wide variety of plans that you can purchase and they all vary by provider. 

Typically, however, the following is usually included with any standard prepaid funeral:

  • Appointing a funeral director.
  • Hire of a hearse.
  • Transportation of the body to a funeral home.
  • Care of the body.
  • Coffin.
  • Minister to conduct a funeral service.

Some plans may also include:

  • Limousine hire for transporting mourners.
  • Doctor’s fees for issuing cause of death certificate.
  • Embalming.
  • Crematorium fees.
  • Choice of officiant/celebrant/minister.

Most plans do not include the following:

  • Memorial, death and funeral notices.
  • Order of service cards sheets.
  • Floral arrangements.
  • Headstones or other memorials.
  • All and any costs associated with a wake including venue hire and catering.

Lastly, it is very unusual for burial fees (cost of burial plot and grave digging) to be included within the cost of a prepaid funeral plan. 

Note: Individual plans vary with some of the costs being covered 100% whilst other expenses may be contributed towards but not entirely met. See ‘Things to Look Out For When Selecting a Prepaid Funeral’, below.

Who Can Start a Prepaid Funeral Plan?

Most companies only offer this kind of financial planning service to individuals who are over the age of 50.

Given death is indiscriminate when it comes to a person’s age and with premature death occurring for a number of reasons including terminal conditions where funeral preplanning is possible (e.g. cancer and Alzheimer’s) some organisations will also offer a prepaid funeral plan to anyone over the age of 18.

How Do You Pay for Prepaid Funerals?

All plans vary but there are two main ways in which you can pay for a prepaid funeral:

  • Upfront in one lump sum.
  • Spread over monthly instalments.

Individual providers may offer a range of ways to pay but do ensure that you understand the implications of spreading the cost which may include additional interest charges or full cover not being provided in the event that premiums are unpaid or a minimum term having not been met (often 12 months) prior to death.

According to the Guardian newspaper, around 1.3 million people in the UK have purchased a prepaid funeral. This figure represents around 2.5% of the adult population in England, Scotland, Wales and Northern Ireland.

Compared to other European countries where end of life financial planning is much more prevalent, this figure is very low. In the Netherlands, it is estimated that around 70% of the population have purchased a prepaid funeral plan whilst in Spain almost half (43%) of all adults have funeral insurance policies.

Pros and Cons of a Prepaid Funeral

There are lots of good reasons for choosing a prepaid funeral plan, the fundamental one being the peace of mind of financial security that this can offer your loved ones after your death. 

Although your estate may cover the costs of a funeral, accessing the money to do so when a Grant of Probate is in place can take several months. For this reason, prepaid funeral plans solve any issues surrounding cash flow which may affect your family’s ability to pay for a suitable service.

Planning and paying for a funeral in the immediate aftermath of a bereavement can be very upsetting and stressful and buying in advance can help reduce the impact of this. For most families, although arranging a funeral is expensive, they are not prepared to shop around for the best deal and can often overpay for services.

Some prepaid funeral plans will even pay out 100% of the benefits  even if you have not paid all of the premiums or instalments.

Prepaid funeral plans also give you total control over the arrangements made for your funeral and can mean that you make better decisions on prices ultimately meaning savings are made in addition to choosing exactly what you want for your own funeral.

Although a savings account could yield similar returns in order to pay for a funeral in the future, this is not guaranteed plus having the money secure in a specific fund means that you (or others) cannot access the money set aside for your funeral.

Another influencing factor is that all money paid into a prepaid funeral plan is not subject to inheritance tax. By contrast, if you place funds aside in a savings account to pay for your funeral then this will be included in the gross total of your estate and will be subject to the prevailing rate of tax.

On the other hand, prepaid funerals are not a good investment if you are planning on a simple funeral service such as a direct cremation. 

There is also no guarantee that the cost of funerals will not come down; in which case, your plan may cost you more than the service itself costs.

Prepaid funerals are not a good idea if you are expected to die within 12 months of starting one as most plans will not pay out within this period.

Some plans are restricted to certain geographical areas as the cost of funerals varies significantly by region within the UK. If you move outside of the area covered by a prepaid funeral plan then you may no longer be covered and/or your family will have to meet additional expenses.

Likewise, if you move from an area where funerals are very expensive to a location where the price of funerals is much lower then you may have paid too much for your plan.

For example, in London the average cost of a basic funeral is £5,880 whereas in Northern Ireland this figure is just £3,231. 

Are Prepaid Funerals Worth the Money?

This is a difficult question to answer with a straightforward ‘Yes’ or ‘No’ as there are many variables to consider. 

Some plans which guarantee to cover 100% of costs that are usually subject to large increases such as funeral directors, coffins and cremation fees may provide a saving compared to ‘at point of need’ funerals. However, this is subject to rates of inflation as well as the period of time between paying for a funeral and when death occurs. 

Other plans offer comprehensive cover which is guaranteed even after paying just 12 months of instalments. In this scenario, there is no question that a prepaid funeral could be worth the money.

It is also worth considering whether a standard savings account could provide the same benefits.

For example, if you prepaid for a funeral now and this was not required for another decade then, using our example above (‘What Will a Funeral Cost in Future?’) costs may have risen by £894.

By comparison, if you placed £4,271 (average cost of a funeral) into a savings account that paid an interest rate of 2.5% then your money would have earned more than £1,200 in interest. However, it is worth bearing in mind that any money you have in a savings account when you die will form part of your estate and will be subject to inheritance tax. Additionally, your relatives may not be able to access this money until probate has been settled which can take 6-12 months.

The question of whether a prepaid funeral plan is worth the money very much depends on the detail of the policy being offered and the costs involved. It is therefore essential that you carefully consider the small print before taking out any plan of this kind.

Things to Look Out For When Selecting a Prepaid Funeral Plan

The main concerns over the prepaid funeral plan sector has been that the ultimate customer is not around when the service is delivered to measure performance against expectation. 

There have also been a rising number of complaints with some companies in the industry using questionable methods to sell their products to vulnerable customers, including the elderly and terminally ill.

The key factor to look out for when purchasing a prepaid funeral is to ensure that the provider is a member of the Funeral Planning Authority (FPA).

Since 2018, the industry has also been subject to tougher regulation from the government and the activities of providers is now monitored by the Financial Conduct Authority. However, there are some loopholes in the way the sector operates which can mean the plans offered by some firms are exempt from direct regulation depending on where the deposited funds are being held. It is therefore essential that you find out which company will hold the money you pay and whether this is protected.

With all of the above, plus the aforementioned Pros and Cons, in mind, we would recommend that you check the following when considering a prepaid funeral plan:

  • Is the provider a member of the Funeral Planning Authority?
  • Are the funds held by a member of the Financial Conduct Authority?
  • Does the plan cover you if you move outside of an area?
  • What elements of a funeral does the plan cover? Should you be saving for additional items like a headstone, burial plot and wake?
  • Does the plan pay out 100% of the benefits even if all premiums have not been paid?

Lastly, you should always shop around for a funeral plan to ensure that you are getting the best cover at the best price.

Telling Your Family and Friends You Have a Prepaid Funeral Plan

It is important that you provide details of your prepaid funeral plan to your next of kin or person who is nominated with the responsibility to organise your funeral. Upon death, they will need to contact the plan providers in order to ensure that a funeral director is appointed whose fees will be covered by the plan.

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