Funeral plans

Should I make plans for my own funeral?

An increasing proportion of people in the UK are making plans for their own funeral. These notes are intended to help you to think through whether this is a good idea for yourself, or for someone that you love.

What is a funeral plan?

The essential idea behind a funeral plan is that you set money aside which is then linked to your funeral wishes. Although some funeral plans are ‘packages’, i.e. a fixed set of items, several plan providers now enable you to create a bespoke funeral plan by selecting the specific options that you want.

Does it make sense for me to take out a funeral plan?

Everyone’s personal and financial circumstances are different and so what suits one person won’t necessarily suit another. But the reasons people often cite for taking out a plan include: it makes their family aware of what they want to happen at their funerals, and puts some finance in place to make it happen; it gives peace of mind; and it ring-fences some funds which might otherwise be used to pay for care fees. You may have another reason – or it may be that a funeral plan is not the solution for you.

What do I get for my money?

In return for paying for a funeral plan in advance, your plan provider will make certain guarantees. Many, for example, guarantee that, no matter when you die, the amount that you have paid for the funeral director’s charges will be covered in full. On the other hand, the amount that has been set aside in your funeral plan for the disbursements, i.e. the monies paid to third parties: crematoria, doctors, ministers, etc, although it will probably increase in value annually, these increases are normally limited to Retail Price Index. So if the actual costs of these items increase at a greater rate, there will be a balance payable at the time of the funeral.

What happens to the money that I pay for a funeral plan?

By law, your money (less any administrative and commission charges) has to be put into one of two forms of investment: a whole of life insurance policy, or a trust fund. Most funeral planning companies use a trust fund.

The agent (usually a funeral director) who sells you your plan is not allowed to have control over your funds, although they can be represented on the board of trustees that administer the trust fund. This measure was introduced to ensure that unscrupulous funeral directors (and there have been some) do not use funeral planning monies as normal working capital for their businesses, hence putting those funds at great risk of being lost.

How do Trustees ensure that enough money is available to pay for all the funerals of plan holders?

Given what has been discovered about the banking sector over the past couple of years, perhaps all of us should pay more attention to what happens to money that we hand over to third parties to be ‘looked after’.

The funds held in Trusts are invested with a view to achieving a return that is at least enough to be able to pay out the agreed amounts on all the plans at the time that they mature (i.e. upon the death of the planholders). Every third year, by law, each Trust is required to engage the services of an actuary to ensure that the size of the funds that they hold is sufficient to meet this requirement. If they’re not, then the trustees are required to take whatever remedial action is necessary to restore the funds to the level required.

Trust funds can also be in surplus, i.e. have more funds in investments and cash than are required to meet their commitments. Some Trusts have been set up in such a way as to allow these ‘surpluses’ to be distributed as, for example, ‘bonuses’ to agents or funeral planning company directors. Whilst this is very popular with the beneficiaries, and is not illegal if allowed by the trust deed, this makes it more likely that the Trust fund has a shortfall in a later year. You might want to ask about what happens to ‘surpluses’ when making your choice of funeral planning company.

And you might also want to ask about fund investment strategies – if environmental or ethical issues are important to you, you might want to determine whether these considerations are taken into account by the trustees when deciding how to invest funds.

How much do I have to pay for commissions or admin charges?

If a funeral plan is sold to you by a funeral director, both the funeral director and the funeral planning company will take a commission payment or admin charge.

These commission, or admin, charges are paid by you in addition to the funds that will be set aside to cover the implementation of your funeral wishes. It is not atypical for commission or admin charges to be between £300 and £400, and they are generally not refundable after the ‘cooling-off period’ following the plan sale. In some plans, the amount included for admin and/or commission charges is transparent to the customer; in others, much less so. Again, this is something that you might want to ask about when considering your choice of funeral planning company.