Funeral plans explained

Funeral plans are designed to help you meet the cost of your funeral. Find out how pre-paid funeral plans work, how much they cost - and the alternatives.
Grace WitherdenSenior writer

What is a funeral plan?

A funeral plan allows you to pay upfront for your funeral so your relatives don't have to cover the costs themselves.

Since funerals are often expensive, paying in advance can bring you some peace of mind. However, a prepaid plan isn't the only way for you to cover the costs.

Your family are allowed to pay for your funeral using money from your estate as soon as you die (and it's not subject to inheritance tax).

Also, a funeral plan will not include everything you need for a funeral. Exactly what is covered will vary from provider to provider. 

This guide explains how funeral plans differ, as well as what you should consider before buying one.

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Do you need a funeral plan?

When deciding whether a funeral plan is right for you, it's important to weigh up the benefits and the risks.

Advantages:

  • They're protected against inflation, so even if funeral costs go up (as they have done consistently in recent years), your funeral plan won't reflect this.
  • They lock in your funeral arrangements now. This saves your family some of the stress of organising every aspect of the funeral themselves.

Disadvantages:

  • Even if funeral costs fall, your payments won't fall. This is possible if the Competition and Markets Authority ever chooses to implement price controls in the funeral market, which it says it is still considering as an option in the future.
  • Your family could face unexpected costs. Funeral plans don't cover all the costs of a funeral. If anything is left to be paid, your family will have to make up the shortfall.

How much does a funeral plan cost?

You can buy a funeral plan from either a funeral-plan provider or directly from a funeral director.

You have the choice of either paying a lump sum or monthly instalments, usually over one to ten years. One-off payments generally range between £3,000 and £5,000. 

Look out for extra charges if you spread out payments.

The level of service you get depends on the plan. Providers typically offer three different types: basic, standard and comprehensive.

Many providers will also offer a direct cremation plan (typically the cheapest option) or a bespoke plan.

How do funeral plans work?

When you take out the funeral plan, you decide on what you'd like your funeral to include.

After you pass away, your family gets in contact with the funeral plan provider. It works with the funeral director to organise the funeral.

What's paid for by the funeral plan varies hugely. As a rough guide:

Basic and standard plans

You'll generally get the essentials including a funeral director's services, coffin, hearse, simple service, transport for the deceased and contribution towards cremation or burial fees.

A basic plan will be cheaper, but there'll be certain limitations on the service - for example, the date and time of the funeral may be restricted. 

Contributions to cremation or burial costs may be low, so your family might have to make up the difference.

Limousines may not be provided for the funeral procession and there are limitations on when you can arrange the funeral (often restricted to midweek) or viewings.

Comprehensive plans

These may include higher contributions or guarantee to cover the cost of some third party fees.

You could also get multiple limousines and more flexibility on the timing of the funeral, and for friends and family who want to arrange viewings.

They also offer the ability to make additional contributions towards special requests during the lifetime of the plan, and complimentary thank you cards at the service.

What costs aren't covered?

Some considerable costs aren't covered by funeral plans. These may include:

  • Burial plots
  • Flowers
  • The wake
  • Catering

In addition, some costs may not be met fully, and your family may have to pay the rest. For example, many providers only contribute towards the cost of cremation or burial.

As always, check the details to make sure you know exactly what you are buying.

What happens if I die before the plan is paid?

If you choose to pay in instalments, there's a risk you'll die before the plan is fully paid. In the event that this happens, your family will need to make up the shortfall.

Some providers such as Avalon and Dignity underwrite their plans so that, if you die before you've finished paying for it, they'll cover the cost.

Is my money safe in a funeral plan?

To safeguard your plan, your provider will either place your money in a trust fund or invest it in an insurance policy that pays out when you die. The Financial Conduct Authority (FCA) has rules to protect your money in both instances.

You may also be protected under Section 75 of the Consumer Credit Act 1974. Under the Act, a credit card provider must protect purchases over £100 if there is a problem with good and services you have paid for, or if the company you are buying from goes bust.

If you are paying for your funeral plan in total upfront, you can benefit from Section 75 protection by putting part of the bill on your credit card.

If you want to pay by monthly instalments you can also gain protection by using the a credit card to pay any deposits or asking your provider to pay part of the bill upfront using the card.

Are funeral plans regulated?

The funeral plan market became regulated by the FCA on 29 July 2022, following concerns over high-pressure sales tactics.

FCA regulation includes:

  • A ban on cold calling and new standards on advertising to make sure plans are sold fairly.
  • A ban on commission payments to intermediaries such as funeral directors.
  • Full 'fitness to operate' checks on those selling funeral plans.
  • A guarantee that funeral plans will always provide a funeral, unless the customer dies within two years of taking out the plan, in which case a full refund will be offered.
  • A guarantee that customers will get a full refund if they cancel a plan within 30 days, or pay a reasonable admin fee if they cancel after that.

You'll also be covered by the Financial Services Compensation Scheme (FSCS) if your provider goes bust, up to £85,000, and you can escalate a complaint about a funeral plan provider to the Financial Ombudsman Service.

You can also find out which providers the FCA refused to authorise in our news story.

What are the alternatives to a funeral plan?

A funeral plan is one way of ensuring your family doesn't have to shell out thousands of pounds after you're gone. But what are the alternatives?

What if you can't afford a funeral?

People in receipt of certain benefits or tax credits might be eligible for state support for the funeral costs. 

The government offers a Funeral Expenses Payment, which covers the cost of the burial or cremation and contributes up to £1,000 towards other costs.

However, if the deceased held a funeral plan, you can only get up to £120 to help pay for items not covered by their plan.

Buying a funeral plan: a step-by-step guide

If funeral plans are for you, following our tips will help you make sure you get the right one to suit your needs.

1. Consider how your family would cope financially when you die

Funeral plans are designed to help meet the cost of the funeral when you're gone, so think carefully about your family's finances.

If your estate could cover the cost of a funeral, even with the likely increases, or your family has the money, a basic plan - or even no plan at all - might be the best option.

Consider whether they might be better off if you took out life insurance instead of or in addition to the funeral plan.

2. Find a number of policies quickly by using a comparison site

A comparison site is a good way of taking the legwork out of finding a number of suitable plans.

Over50Choices, for example, compares many of the big providers, so are a good starting point.

Remember, however, that funeral plans can be complex so you should examine the policy carefully and phone the provider if you are unsure about any of the details.

Key Information

Warning on funeral plan comparison sites

Many websites out there operate as 'lead generators', which means they pass on your details to intermediaries who then deliver a hard-sell.

Always read the website's terms and conditions before using one, and refrain from giving you out your email or phone number in order to get a quote. If you do want to input your details, consider setting up an alternate email address so you don't get spammed.

3. Pay for your policy as quickly as you can

Like many other financial products, such as car and home insurance, funeral plan providers give you the option of paying either in instalments or in a lump sum.

Most providers give you the option to pay over 12 months to 120 months. Paying in instalments for a long time will cost more because of administration fees and interest.

While 12 monthly payments may cost roughly the same, paying over 60 months, for example, can add around 15%-26% to the overall cost.

4. Read your documents carefully

While funeral plans cover much of the cost of funerals, there are many items that are exclude, such as headstones and burial plots. Some costs are also capped, such as burial and cremation costs.

Read the documents carefully to make sure you understand the plan fully - as well as its limitations - before you buy.

5. Tell your loved ones

If, after you die, your plan goes unclaimed, then the funeral plan provider could repatriate the money.

Make sure your family know you've bought one, and who with, to save them the trouble of hunting down your funeral plan.