Funeral insurance worthwhile?
|Protection | Life Cover
Asked by normova, submitted
27 September 2010.
More a question on DEATH cover! Do you think it is worth investing in a funeral plan to pay the expenses of my and my husband's funeral? Or would I be better taking out life insurance?
I am 63 in very good health and my husband is 65 and in good health.
Answered by Justin on 29 September 2010
Funeral plans basically involve paying for the funeral now, either via a one-off payment or spread over several years.
This protects you from rising costs, but you’ll obviously lose out on the returns you could otherwise have earned from saving or investing the money. You’ll also need to be sure you’re paying a fair price for the funeral – costs tend to average £2-3,000 depending on your requirements.
The Co-op ‘Satin’ plan, for example, charges £2,730, or £56.87 per month over 5 years. Interest on the monthly installments is 9.5% APR; not extortionate, but a little steep versus ‘best buy’ personal loans.
Given funeral costs seem to consistently rise by more than inflation then ‘pre-buying’ your funeral doesn’t seem a bad idea. But always check exactly what is and isn’t included, for example the cost of a burial plot (grave) and headstone are unlikely to be included (the co-op doesn’t).
The life cover route requires you to pay monthly premiums for the rest of your life, so whether you get value for money depends on how long you live. The life cover might also be linked to a funeral provider with the guarantee that a funeral will be provided for the amount insured. Either way, you’ll need cover that increases over time to keep pace with the rising cost of funerals – or factor this in to the amount of cover if level (i.e. not rising over time).
As an example, Legal & General charges £14.50 per month for £2,250 of cover for a 5 year old male via it’s over 50’s funeral plan insurance, with premiums rising by 1.5% for every 1% the benefit increases (increases are linked to inflation). The plan is linked to Dignity funerals, who receive the proceeds on death and agree to carry out the funeral for the sum assured.
These over 50’s life insurance plans usually only offer single life cover, so both you and your husband would need to buy a policy, doubling the cost.
In the Legal & General example you’d break even after around 11 years, ignoring inflation.
If you think you and your husband are likely to live for at least another 10-20 years then you could just save a small monthly amount, perhaps using a cash ISA, in the hope this will cover funeral costs. For example, saving £20 per month at an average interest rate of 3% would grow to £2,796 after 10 years and £6,553 after 20.
All the above approaches have their pros and cons. If you opt for pre-purchasing a funeral or life insurance then do shop around to find a good deal and check the small print to ensure you know exactly what is and isn’t included. The funeral business is out to make money, like any other, and to an extent relies on our general unwillingness to shop around on this very sensitive subject.