Funeral Plans vs Life Insurance: Which is better?

What is the difference between life insurance and a funeral plan?

Funeral plans (often also referred to as ‘funeral cover’) and life insurance both provide a lump sum when you pass away. Although there are many differences, the main one is how that sum can be used.

With life insurance the sum can be put to any use it may be needed for.
Some examples are paying for your funeral costs, repaying a mortgage, or financially supporting loved ones.

In contrast, the sum available under a funeral plan can only be used for the funeral services set out in the plan itself.

What is a funeral plan?

A funeral plan enables you to plan and pre-pay for your funeral with a specific funeral provider. Funeral plans have no cash value, but the payments made under them can be used to offset the cost of arranging your funeral when you pass away.

What is life insurance?

Life insurance (sometimes referred to as ‘life assurance’ or ‘life cover’) is a type of insurance policy that provides your loved ones with a financial payout in the event of your death. There are many different policies and we define the main types within this article.

Is it better to have life insurance or a funeral plan?

In deciding which option is best for you, it is worth considering the following points: 

• Would you be happy for your loved ones to plan your funeral or would you prefer to do this yourself? 
• Is it likely that you will have enough assets when you pass away to cover your funeral costs?
• Are you comfortably able to commit to a monthly payment going forwards?
• Are there other expenses, such as the cost of repaying any loans or finance or obtaining a Grant of Probate, that you would like to cover for when you pass away?

Does life insurance cover funeral costs?

The short answer is yes, a life insurance plan should be sufficient to cover your funeral costs. However, unlike a funeral plan there is no requirement to specifically apply the payout to your funeral costs. This is at the discretion of the named beneficiary of the insurance or your next of kin.

Pros of funeral plans & life insurance

LIFE INSURANCE	FUNERAL PLANS
There is usually no minimum qualifying period, so a payout can be made even if you pass away immediately after starting the policy.	No probing questions regarding your health and lifestyle.
Provides a lump sum cash payout when you pass away whilst the policy is in place.	Guarantees to cover the cost of your funeral service at today’s price, helping you avoid being caught by any increase in service cost.
Use of the lump sum is not restricted to paying for funeral plans.	Allows you the freedom to plan your funeral according to your wishes.
Cover can be tailored to you and combined with other types of protection such as terminal illness cover.	Your loved ones won’t need to worry about meeting the cost of your funeral or it reducing any inheritance.
Policies are highly flexible, allowing policyholders to benefit multiple people as ‘beneficiaries’, increase the indemnity limit or cancel the policy at any time.	The flexibility of payment options – you can pay the total as a lump sum or make monthly contributions over several years.
Low monthly cost. Although on average people in the UK pay £31.77 towards life insurance each month, the cost of some types of cover is as low as £5 per month according to research carried out by Protect Line in 2021.	Peace of mind that your money is safe if you choose a Funeral Planning Authority (FPA) regulated provider.
Insurance can be taken out at various stages in someone’s life and cover is usually cheaper if taken out when you are younger.	Plans can be tailored to suit your budget.

Pitfalls & Cons of funeral plans & life insurance

LIFE INSURANCE	FUNERAL PLANS
Cover may be difficult to obtain the older you become.	Plans are not suitable for people who are near death as the cost of setting up a plan may not be cheaper than simply paying for the funeral when the time comes.
Taking out a policy involves scrutiny over your medical history and general health.	Funds are not released until you have passed away.
Payout on death is not guaranteed if the cause of death is not covered under the policy or lifestyle choices leading up to death have invalidated the policy.	Cover under some plans can be affected if you move areas or emigrate.
You must commit to regular monthly payments in order for the policy to remain valid which will reduce any disposable income.	You must either pay all of the funds as a lump sum or commit to regular monthly payments.
Funds are not typically available immediately; a claim must be submitted and approved by the provider.  The initial cost of the funeral may need to be met by the assets of the deceased or their loved ones.	Funeral plans have no cash value.
Cover is not guaranteed and must be approved by an underwriter.	Plans do not cover all of the costs of a funeral. Additional thought should be given to covering the cost of a religious service or hosting a wake, for example.
The combined monthly payments under a policy can exceed the value of the payout if you live for a long time.	The majority of providers will not include a burial plot within the cost.

Life Insurance Providers

The best provider for you to choose depends on the level of cover you are looking for. Different providers tend to specialise in different areas – be that income protection, whole of life, Over-50s or term live cover.

A Whole of Life and Over 50s policy are the most popular for covering funeral costs as your named beneficiary or beneficiaries are guaranteed a payout when you pass away.

From our research, it would seem that the most popular life insurance providers generally are Legal & General and Liverpool Victoria, followed closely by the likes of Aviva and VitalityLife.

Finding Cheap Life Insurance Policies

Your age and state of health will influence the level of your life insurance payments. This is why it is generally considered that taking out a policy is best done as early as possible when obtaining whole life cover. 

We would advise using a price comparison website such as Moneysupermarket, GoCompare or Uswitch where you can enter some basic details and receive quotes within a couple of minutes.

Funeral Plan Providers

In a saturated market of funeral plan providers, it is difficult to choose a suitable one.
Given the current economic climate and the recent case of Safe Hands Plans, which had sold thousands of funeral plans to its customers, falling into administration in March 2022 we would suggest opting for an established provider for additional peace of mind. The following two are an example:

• Co-op Funeralcare is the largest funeral director in the United Kingdom and is registered with the Funeral Planning Authority. Their plans range from £3,225 for their Simple Plan all the way up to £4,460 for their Gold Plan. Small discounts are available for Co-op members and payment options include payment in full, monthly payments over 6 or 12 months, or monthly installments over 2-25 years.
  
• Golden Leaves have been a provider of funeral plans for over 35 years and they are registered with the Funeral Planning Authority. Their prices range from £1,495 for their Copper Plan to £4,199 for their Platinum Plan. Payment options include a lump sum or 12, 24, 36 or 60 monthly installments.

We have taken a deeper look at funeral plan providers and have outlined the best prepaid funeral plan depending on your current situation.

Cheapest Funeral Plan Providers

1. Simplicity Cremations – prices from £999 for a direct cremation, £1,395 for an intimate funeral or £1895 for a family-lead funeral with a full-length service. 
2. Affordable Funerals – prices from £1,490 for a direct cremation which rises to £2,295 if you wish for there to be a traditional service. 
3. Golden Leaves (outlined above) – prices from £1,495 for a direct cremation or from £2,533 if there is to be a service.
4. Pure Cremation – this company specialises in direct cremations and prices start from £1,595.

As briefly mentioned in the ‘Cons’ table above, a payout of a life insurance policy is not guaranteed and as a claim needs to be lodged with the company it may not be available in good time to cover the funeral costs. In addition, you will have to separately plan your funeral and make your loved ones aware of your wishes. 

Another issue to consider is the future affordability of funerals. According to research published by Sun Life in 2022, ​​the average cost of a funeral has risen 128% since 2004. It is predicted that in the next five years, funeral costs will rise a further 20%.

With funeral poverty sharply on the rise, public funerals paid for by local authorities where the deceased and their relatives are unable to pay for expenses are now commonplace.

UK councils spent £6.3m on so-called ‘paupers’ funerals’ in the 2018-2019 financial year. These sobering statistics make the guarantee built into funeral plans that you will pay today’s rate for the services used all the more important.

Can you have a Funeral Plan & Life Insurance?

You can take out both a life insurance policy and a funeral plan. Both products are very different from one another and are intended for different purposes, which when combined can ease any financial burdens caused by you passing away whilst leaving a lump sum for the benefit of your loved ones.

Is age a factor?

When considering which product to opt for it is important to consider that each one may be more suitable for certain people. For example, if you are nearing the end of your life then obtaining a life insurance policy may be challenging and also costly. In contrast to this a funeral plan has no upper age limit and the price you pay will be the going rate for a funeral plan with the company you choose.

Considering loved ones and beneficiaries

You should also consider if you have any loved ones that you may wish to benefit when you pass away. Perhaps you have children or dependents that you would like to look after – can your Estate meet their needs? If not then a life insurance policy should be considered as the sum will be paid to any named beneficiary.

What about the long-term cost?

With funeral plans a set cost is agreed for the service you are purchasing which can be paid as a lump sum or in an agreed number of monthly installments which end once the plan is paid in full. 

However, with life insurance you make a commitment to pay the monthly premium for the term of the policy and the costs can stack up, particularly if you have health issues or if there is a high level of financial cover within the policy.

In an ideal scenario with no constraints on your disposable income it would perhaps be wise to have both life insurance and a funeral plan. This is because even in the premium plans offered by some providers, some of the following are often not included: embalming, floral tributes, newspaper notices, orders of services and doctors fees. Unfortunately, this is a non-exhaustive list.

However, with the already steep cost of funerals forecast to rise significantly over the coming years it is impossible to ignore that taking out a plan will guarantee the cost is frozen at today’s rate. It is for this main reason that we would recommend that, if you can afford to, you consider taking out a funeral plan today.