Funeral Insurance Policies.
A funeral insurance policy often doesn’t do what it says (or rather, implies) on the advertising. Advertising for this type of senior insurance policy has changed a lot over the last few years, so it now says that it will contribute towards the cost of your funeral. In real terms, most will contribute much less than you might expect. We understand that over half a million people a year buy from funeral insurance companies, and as you might expect, some are better than others.
Advantages of Funeral Insurance Plans.
- You can put aside a lower amount than you could for an proper prepaid funeral plan (though of course the benefits will be much lower too.)
- No medical is required, the same as for a prepaid plan, but the insurance plan will pay out in full after an initial period, often 2 years. So if you die in the first few years, a monthly paid life insurance can be better value than a monthly prepaid funeral plan. So if you are in very poor health and pretty sure to die in over 2 years and under (say) 6 years, this sort of plan could be a bargain.
Disadvantages of Funeral Life Insurance.
- There is generally only accidental death cover in the “moratorium” period, typically 2 years. If you should die from natural causes or by your own hand, some companies would pay back what you had paid in plus some interest.
- In most cases (unless you keep increasing premiums) the buying power of the death benefit will shrink in line with funeral cost inflation. Over the last 5 years that would have reduced the real value of a £3,000 insurance to a little over £2,000 – a big drop which will only get bigger over time.
- Nearly all funeral insurances are “non profit whole of life” – policies which are not regulated by the Financial Conduct Authority. They have NO CASH VALUE at any time. This means that if you miss a few premiums because you are ill, then you die, your policy will not pay out a penny. The longer you have paid in, the more you will lose. Prepaid plans are the other way round.
- Insurance premiums will typically have to be paid until you reach 85 or 90, so the longer you last, the worse value they provide. Prepaid plans are normally paid off within 10 years, so whilst the initial monthly cost may be higher, the long term value is much better.
- With an insurance plan, you may well end up paying in more than your family get out towards your funeral. Some companies “generously” say they will, if the policy is still running when you die, pay out all of your premiums as a death benefit. In effect, you have made an interest free loan to them for perhaps 30 years.
Our Conclusion On Funeral Insurance.
Most people are guaranteed to lose out on these plans, and would be better off with even a very basic prepaid plan.
But there is a small group of people who could benefit. They are people with terminal illnesses which are unlikely to result in death before 2 years are up, but are unlikely to survive for more that 6 to 8 years. If you are unfortunate enough to be in the category, why not go for it? Your family need to understand that early death will result in no significant benefit, but if you last through the moratorium (premiums back only) period, and don’t live for an inconveniently long time, then funeral insurance could be a bargain.
Give us a ring and we will chat the options through without obligation.