Pre-Paid Funeral Plans – The Alternatives.
Pre-paid Funeral Plans are increasingly becoming the normal way of planning to avoid unnecessary financial and emotional stress at a difficult time. However, pre-paid funeral plans are not the only way to plan or to pay for funerals.
Life insurance policies – an alternative to Pre-Paid Funeral Plans.
Often known as over-50s plans, these typically pay out a set amount when you die, as long as that is not within the first two years. Within the first two years, you would (at best) just have the premiums paid returned to your estate. And it gets worse from there – read the article “The funeral plans that pay out less than you’ve saved when you die”:
Read more: http://www.thisismoney.co.uk/money/investing/article-2144865/The-funeral-plans-pay-youve-saved-die.html#ixzz1ySJBEupc. Believe it or not, one of the providers has “overcome” this disadvantage by offering to return ALL of the money you have given them over 30 years if that is more than the death benefit. No interest – lend them your money to invest and profit from for (say) 30 years and they will give it back to you when you die!
Or watch the Watchdog Video.
Unlike pre-paid funeral plans, your family will have to make all the usual funeral arrangements – they will just have a cash sum towards the costs which may or may not be adequate.
With the life insurance policy, you do spread the cost out. However, you could pay much more in monthly premiums than the policy will ever pay out if you live a long time. Which? in their review of pre-paid funeral plans said “a 60-year-old man paying £15 a month to Legal & General would get £2,879 for a funeral after two years. After his 76th birthday, he’d have paid more than the policy covers and would have to continue paying until he died or reached 90.”
Full refunds are only paid during the cooling-off period. The age at which you take out the policy will decide how much you have to pay every month. The older you are, the higher the monthly premium, as you can be expected to die (on average) two years sooner that someone two years younger than you. Therefore, the insurance company has less time to get it’s money back, so it needs to charge more.
With pre-paid funeral plans, the cost is the same whatever your age or state of health.
Savings accounts – an alternative to pre-paid funeral plans?
Funeral costs have general risen quite rapidly, and it is extremely unlikely that even a tax free account will pay enough interest to keep pace with funeral inflation. Do you know of any savings accounts paying 8.7% a year after tax – the funeral inflation rate at the time of writing? The the gap between the cost of a funeral and the value of your savings account will grow significantly as each year goes by. We should really say MAY grow, but that is not really the reality!
To make sure that relevant relatives can access the money after your death, you will be well advised to set the account up in joint names with a family member.
Paying from your estate – another alternative to pre-paid funeral plans.
Funeral costs can be paid from your estate after you have died, provided you have adequate funds in a normal bank account, or perhaps a deposit account. Banks will normally release funds to pay for your funeral if given an itemised invoice from the funeral director and a copy of the death certificate. But only if the bank holds enough cash funds on your behalf.
Pre-Paid Funeral Review Summary.
The alternative methods to pre-paid funeral plans can be useful for those who can’t spare the cash to invest in a pre-paid funeral plan. But in our opinion, none are as good as the Pre-Paid Funeral Plan, and they can be made pretty affordable with a combination of a deposit and monthly payments over anything up to 10 years.
Apart from taking a massive amount of responsibility off those behind, pre-paid funeral plans are far more likely to pay out enough to cover all the expenses (or very nearly all) than any other method, and they are MUCH easier to access. Once bought, doubts are removed – no two year wait, or savings account which those left behind might have to fight for access to. It should also be remembered that those with cash in savings accounts (rather than a pre-paid funeral plan) could have reduced Social Services benefits.