There is a lot of confusion surrounding over 50s life insurance plans and pre-paid funeral plans and how they work. Below is a guide to the differences, which you may find useful in deciding which is right for you.
Over 50s plans (also known as funeral expenses plans)
Pre-arranged funeral plans (also known as pre-paid funeral plans)
How they work
An over 50s funeral plan is a life assurance policy which pays out a fixed lump sum when you pass away.
They are typically purchased with funeral costs in mind, hence why they are often referred to as funeral expenses plans.
An over 50s plan could work to your financial advantage if you die early in the life of the policy, because your claim will be for more than you have paid in.
While over 50s plans are typically purchased to cover funeral expenses, the money from the claim can be used for something other than the funeral. As such, over 50s plans can be more flexible than funeral plans.
Over 50s plans tend to guarantee acceptance without the need for complicated medical/health checks (as do funeral plans).
Monthly premiums are low which make them an affordable option.
Over 50s plans are guaranteed to pay out from the day you arrange the policy. Please check the small print as this can vary.
If you live longer than expected, you could end up paying more in monthly premiums than the plan pay-out value.
If you stop paying, you may find there is no cash-in value – many over 50s plans require you to keep paying until the end of your life or a set point in the future.
Rising funeral costs means your funeral may end up costing more than your over 50s plan is designed to pay out.
How they work
With a funeral plan, you select your funeral director and arrange and pay for their services in advance. You can also make a contribution towards third party costs such as cremation, burial, medical and officiant’s fees. When the time comes, the money is paid directly to the funeral director for the purpose of carrying out the funeral.
A pre-paid funeral plan enables you to choose your funeral director and the funeral services you require in advance. This ensures your funeral wishes are known, reducing the worry and number of decisions for loved ones and ensuring they have access to expert help and advice at the time of need.
Funeral plans tend to guarantee acceptance without the need for complicated medical forms or health checks.
Most funeral plans allow you to pay by lump sum or regular monthly instalments.
Most pre-paid funeral plans cover your funeral director’s costs so there is nothing more to pay regardless of how long you live or what happens to the economy the meantime. This can benefit your loved ones financially. You can also normally include a contribution towards third party costs, but there may be more to pay at the time of need depending on the value of the plan.
With most funeral plans, if you cancel the plan you will receive a refund less any management/cancellation fees. This should be clear in the terms and conditions. You should also check what fees and charges are removed from your plan as these can be significant. With our plans, the management fee, which is the administration fee to set-up the plan, is clear at the outset.
Trust fund model
The money you pay for your plan is held in a trust fund and managed by a board of trustees. The trustees administer the money and decide how it will be distributed.
In some cases, the money paid into a trust fund is not ring-fenced for the provision of the funeral. Some funeral plan providers will use the funds for business costs.
It is possible that the value of a trust fund could fall over time. This means there is a risk that in the future, the fund may not contain enough money to pay out for all existing plans.
Whole of life assurance model
This is the model we choose to operate. The money you pay for your plan is held in a whole of life assurance policy. With our plans, every penny (excluding the initial management fee) is ring-fenced to pay for your funeral when the time comes.
We only work with life assurance companies that are authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority for your peace of mind.
Choosing the right product will depend on your individual circumstances but we hope this quick summary of the key product differences is helpful.
As with any financial product, please read the small print carefully. The information above is provided as general guide and product terms vary.
For more information, please call us on 0800 055 6503.