The downsides of prepaid funeral plans and how you can avoid them.
This article addresses, with complete truth, the downsides of prepaid funeral plans experienced by bereaved families. Looking at the cause of those problems so you can avoid them.
Who is this guide for?
Reading time:
6.5 mins
The truth about the downsides of prepaid funeral plans;
In the spirit of complete transparency, we would like to stress funeral plan problems are both rare and often completely avoidable.
What do we mean by ‘rare’?
The Competition & Markets Authority report 2020 commented that the number of complaints dealt with by the Funeral Planning Authority (87) represented “a small proportion” [0.02%] of all 339,967 [financial product] complaints resolved by the FOS" (Financial Ombudsman Service) in the same year. [1]
At Before You Go, we are passionate about the benefits of funeral plans. As we’ve seen first hand the difficulties families face when a funeral isn’t planned. Our goal is to share this information with you in the hope that your family will never end up experiencing the same difficulties.
Three common downsides to prepaid funeral plans and solutions.
The downsides of prepaid funeral plans and how to avoid them?
Problem 1:
The funeral plan didn’t cover the cost of the funeral
The funeral director's fee
Third-party cremation or burial costs
It’s important to understand that a prepaid funeral plan guarantees to cover the funeral director's fees as outlined in the funeral plan. No matter how much these costs may rise in the future. Although, cover for the third-party cremation or burial costs may or may not be included in the funeral plan. This will vary dependant on the plan you choose.
Typically, issues arise when the details of what is and what isn't included in the funeral plan have:
- Not been correctly communicated by the funeral plan seller.
- Have been misunderstood by the buyer (the plan holder).
- The plan holder has fully understood the contents of the plan, but hasn’t told their loved ones that there will, or there may be, some additional cost to pay when the funeral is needed.
Why don’t funeral plan providers include third-party cremation or burial fees as standard?
The reason why some funeral plan providers choose not to include third-party cremation or burial cover, is that these fees vary so widely throughout the UK and a blanket UK-wide funeral plan price could unfairly penalise people in areas where these cremation or burial fees are lower.
In an effort to make funeral plans more affordable, funeral providers offer three types of plans that will pay all, some, or none of the third-party fees. Otherwise known as "Guaranteed", "Contribution" and "No contribution" funeral plans.
Funeral Plan
Type
Includes
Funeral Director's fees
Includes
Cremation or Burial fees
Guaranteed
Cost: £££
Cremation plans only: You should be aware some funeral plan providers choose not to include the doctors’ cremation certification fees, because they aren’t always needed - it depends on the circumstances surrounding the death. *
Contribution
Cost: ££
£ Contribution
This plan includes a contribution towards the necessary third-party fees for cremation or burial. The amount will differ between funeral plan companies. The contribution amount is expected, but not guaranteed, to cover the third-party fees.
With the contribution amount growing until the funeral is needed, in line with Consumer Price Index (CPI) or some other growth mechanism the funeral plan provider chooses. If there is a shortfall at the time of the funeral, your representative will need to pay the balance.
No Contribution
Cost: £
All necessary third-party fees for cremation or burial will have to be paid by your representative at the time of the funeral.
Third-party fees example (2021)
UK Cremation:
Beckenham crematorium £1,070
Belfast crematorium £392
Difference: £678
UK Burial:
Kensal Green cemetery £1,550
Belfast cemetery charges £608
Difference: £942
Source: Beckenham Crematorium & Cemetery, Kensal Green Cemetery, Belfast City Council - Feb 2021
What’s the solution to ensuring the full cost of the funeral is covered?
Step 1: Buy a 'Guaranteed' funeral plan
A Guaranteed funeral plan ensures the necessary third-party cremation or burial costs are covered.
However, if you're unable to afford a ‘Guaranteed’ funeral plan in a single payment, you could consider paying in instalments (up to 25 years). Alternatively, there's no charge for spreading the cost over 12 months. But, if you were to die before the full amount has been paid, the funeral plan balance would need to be paid from your Estate or by your personal representative.
Furthermore, you should be aware that some cremation plans don’t always include the doctors’ cremation certification fees. This is because they aren’t always needed. As it depends on the circumstances surrounding the death. (Doctors’ fees aren’t applicable in Scotland).
'Contribution' and 'No Contribution' funeral plans are still great options based off your needs.
Step 2: Have the conversation
Whichever plan type you buy, make sure you give your representative a copy of your funeral plan pack. So they know if they can expect to pay all of the cremation or burial fees, or a possible shortfall at the time of the funeral.
Problem:
Loved ones had to pay an additional amount for the third-party cremation - or burial - fees at the time of the funeral before it could go ahead.
Solution:
Buy a Guaranteed plan, if you can.
Let your family know if they may be expected to pay the cremation or burial costs at the time of the funeral.
Problem 2:
The funeral plan didn’t cover the third-party funeral ‘extras’ costs
Usually, third-party funeral ‘extras’ are the extra items often bought at the time of arranging a funeral, e.g. floral tributes, order of service stationery, funeral notices, memorial headstone, scattering of ashes.
Typically the cost of extras isn't included in set funeral plans, the reason being is that not everyone wants them, and to include the cost would push up the price of the funeral plan.
On the other hand some extras you may find included are the scattering of cremated remains and a set of thank you cards.
Finally, this problem usually occurs when it is assumed these items are included in a funeral plan. So be sure to check your'e plan ahead of time.
What’s the solution to covering third-party funeral 'extras'?
Firstly, reading the terms of your funeral plan carefully.
Then for items you want, but aren't included in your plan, consider paying a contribution towards those extras. Which allows you to choose the amount you would like to add to the plan to cover these costs. Usually getting funeral plan advisors thoughts on what the amount should be.
Additionally, the contribution will grow in line with the consumer price index or in some other way, until the funeral is needed. However, in the event of a shortfall, the balance will need to be paid at the time of the funeral to the funeral director. Either from your estate or by your representative.
It is worth noting your ability to add a contribution will depend on the plan you choose. Lastly, you can look at upgrading your funeral plan. Which may prove more cost-effective than including a contribution amount.
Problem:
Loved ones had to pay an additional amount for the funeral extras at the time of the funeral.
Solution:
Read the terms of the funeral plan carefully to see what is and isn't included.
Pay a contribution towards the extras, or consider upgrading your funeral plan - this may be more cost-effective.
Let your family know that there may be more to pay at the time of the funeral if the contribution amount falls short.
Problem 3:
More money was paid into the funeral plan than the funeral eventually cost
You have three options when it comes to paying for your funeral plan. Which are,
A single lump sum.
Monthly instalments (up to 25 years)
Pay lower fixed monthly payments (FMP) up to a specified age, e.g. age 90, or for life.
If you choose the lower fixed monthly payments route, depending on when you take out your plan and when your funeral is needed, you might end up paying more into the plan than the value of the funeral when it’s needed.
On the other hand, you could end up paying a lot less. Nonetheless the funeral plan providers will pay out the full benefit of an FMP plan after just 12 - 24 months payments.
For example:
A 50 year-old paying £26.74 a month for a Traditional funeral plan, which includes the funeral director's fees, one limousine and the third-party cremation fees, could have the entire funeral paid for (at an average cost £4,184 in 2021) for just £320.88.
What’s the solution to not paying more into a fixed monthly payment funeral plan than the funeral is worth?
Make sure to look for a funeral plan that includes a rebate on the FMP overpayment.
The FMP overpayment amount is the difference between the total amount you have paid into the plan and the sum paid out to the plan provider to fund your funeral.
Typically, if the plan is deemed to be in a state of overpayment, your estate will be eligible for a rebate of the overpayment. Although the amount will depend on the type of plan, the age of the plan holder at the time the policy is taken out, and the date of death.
Terms apply.
Problem:
Loved ones were upset to discover that more money was paid into the plan than the cost of the funeral at the time it was needed.
Solution:
If you intend to pay for your funeral plan using the lower fixed monthly payment option, consider choosing a plan provider that includes an overpayment rebate promise.
For more information on your payment options, click here.
Useful information
What’s included in the funeral director’s service?
[1] Source:
https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/805844/Funeral_plans_impact_assessment_Annex_B.pdf
