How does a prepaid funeral plan work?

How do prepaid funeral plans work? this is a very common question and one we are very happy and able to answer.

Prepaid funeral plans work by paying a monthly fee or a lump sum. This money is then used by the provider to organise and deliver the funeral on the death of the named individual. 

People can often get the terminology wrong too and say “how do prepaid funerals work?” whilst it may feel as though a prepaid funeral plan is a prepaid funeral is it not. In some cases the plan will cover certain aspects but not all of a funeral so its important to understand which is which. 

While prepaid funeral plans are very popular a lot of people still don’t fully understand how they work. Understanding how a prepaid funeral plan works is very important when considering one for yourself or someone else. This guide is designed to give you all the information you need to be able to understand the process by which a funeral plan is paid for, pays out, and how the entire plan is designed to bring peace of mind to anyone looking to prepare for their funeral financially.

What is a prepaid funeral plan?

A funeral plan is an arrangement that allows a customer to pay in advance for their own or another person’s funeral.
The plan is a contractual arrangement with a provider, who assuming the plan has been paid for, is then responsible for arranging the funeral when it is required and paying for those elements covered by the plan.

Why do prepaid funeral plans exist?

Prepaid funeral plans allow you to choose and agree the arrangements for the sort of funeral you wish to have in advance. This allows you and your family if you wish to shop around and make sure you buy what you want at a time when it is easier to do so. Plans allow you to fix the cost of most elements of the funeral, and protect you from future inflation of funeral related costs.

These financial issues are one part of why people choose to purchase prepaid funeral plans. However, for many the main reason for buying a plan is more to do with putting their affairs in order. Customers say they simply want peace of mind that everything is taken care of with regards to their funeral, and that they don’t want their families to have to worry about it when they pass away.

Is a prepaid funeral plan the same as an over 50’s plan?

Some life assurance policies which provide a cash amount on death are sometimes referred to as funeral plans. However, they are not, for a number of reasons.

Firstly, the money paid out can be spent by the beneficiary on whatever they wish at the time. Secondly, the money paid out may not be enough to cover the expense of a funeral. It may also be less than what you paid into the plan.

Finally, there isn’t a contractual arrangement with a provider who is responsible for arranging the funeral. If you purchased an over 50’s plan, and intended to use the funds for a funeral, your loved ones would still need to make the necessary choices and arrangements with a funeral director after your death.

What happens to your money and how is it protected?

The rules around the regulation of funeral plans mean that the money to provide the funeral is set aside in something called a ‘whole of life policy’, or held in a trust that is separate from the funeral plan provider. Either method means the funds are kept separate from the provider company until the time that the funeral is needed.

Following the death of a loved one, their estate will likely be subject to inheritance tax. A big benefit is that funeral plans are not subject to inheritance tax as they are not counted towards your estate, unlike savings which will be liable to taxation following your passing.

Planning what you want from your funeral

Thinking about your funeral can be difficult, but if you’re considering purchasing a funeral plan it gives you an opportunity to have practical and rational conversations about what you want your funeral to be like.

Buying a prepaid funeral plan allows you to choose the various elements of your funeral, for example, whether you would like a burial or cremation. Many customers say they prefer to have planned everything out in this way so that their relatives don’t have to do it after they’ve gone.

What happens when you die if you’ve purchased a funeral plan?

We recommend that customers tell their loved ones when they’ve purchased a funeral plan, where they’ve purchased it from, and if possible they should let them know where the paperwork is stored. This makes it much easier for relatives to contact the provider in question and start arranging the funeral. Once they’ve made contact, the process should be quite simple as the customer would have agreed all of the arrangements when they purchased the plan.