Advice: save money or prepare a funeral plan

Tabby026

Hi,

My mum is 59 and my stepdad is 66. They are wondering if it is worth buying a funeral plan at approx £3200 each or saving the money in a high interest account. They have an ISA each and other savings so would like advice on what to do, as they have herd that funeral plans are going to increase and as interest rates are lowat present they think doing a funeral plan each is a good idea. What are peoples views?

ses6jwg

Although they get a bad press, I don't think the "over 50s life plans" are bad value in certain circumstances.

Just be sure to shop around, as some plans are much better value than others. Some also do not cover the policy holder until the 2nd year in, other policies become "on cover" after just 1 year.

Also the better plans have a maximum contribution period such as 20 years- - others must continue until date of death to be covered.

They are ideal for people who do not have a large amount in savings, a funeral can cost up to £5000, and spreading the cost via one of these policies can be easier to manage and better value than simply saving.

Be sure to check the small print.

Biggles

As they have savings, I see no point. Funeral plans aren't sold at a loss....

webmasterpolo

A savvy moneysaver would see funeral plans that are held in trust, inflation linked guaranteed to pay the cost of a funeral on death whenever it might cost a good deal, if you can afford the lump sum (some allow payment of the lump sum spread monthly)

The key is finding one like this, some aren't in trust.

It's simple maths. If they rise by 5%pa forever on average, and you're savings average 4%pa forever, then obviously there will be a huge saving with the compounding.

Plus if there are inheritance tax liabilities it avoids having to in effect pay 40% tax on the price of the funeral.

Over 50s plan are completely different. They do not provide a guarantee to cover the cost of the funeral. Compared to normal life cover they are extremely expensive, so unless normal cover is beyond reach I don't see how they would ever be a good option. A normal life insurance with loading for medical conditions could still be cheaper, and should be quoted for before considering an over 50 plan.

-Web

Tabby026

Hi so what you are saying is if a funeral plan goes up by 5% and you are only say getting 4% on your interest then the funeral plan is the best bet?

webmasterpolo

Yes, if you can afford it, it's a no brainer.

-Web

opinions4u

Tabby026 wrote: »

Hi so what you are saying is if a funeral plan goes up by 5% and you are only say getting 4% on your interest then the funeral plan is the best bet?

Yes. But knowing what rate of savings / investment return will be compared to funeral cost inflation for the next 20+ years is anybody's guess.

jamesd

Banks like NatWest will issue a cheque to cover funeral costs when they are provided with an invoice from a funeral director and death certificate. Cheque sent to the funeral director. So all they need is money in a savings account held with any bank that does this. They may keep that much in a savings account just for emergency money and if so there's no reason to make any other provision.

Assuming they are in normal good health, about half of people their age will live to be over 88 years old. It's a bit early to be planning on dying.

webmasterpolo wrote: »

Plus if there are inheritance tax liabilities it avoids having to in effect pay 40% tax on the price of the funeral.

Like all of the expenses of the estate, the cost of the funeral is paid before any inheritance is paid. Which means also before any inheritance tax is due. So no inheritance tax on funeral costs.

Seb71

Hi everyone,

I ended up buying a funeral plan for dad earlier this year and it’s interesting to see the thoughts expressed in this thread (similar to my thought process when I started looking into what would be best for dad.) What I don’t understand though is why people always talk about 50 plus insurance plans and pre-paid funeral plans like they are two different options to provide the same thing, because they really aren’t.

An insurance policy normally gives you a fixed sum of money, which decreases in value over time (for example, you can get a policy worth £3500 now but it will still only pay £3500 in 10 or even 40 years’ time) - a funeral plan on the other hand guarantees to provide a service in the future at today’s cost. Some plans even use life assurance policies to fund them so you don’t have to pay the full whack upfront if you can’t afford it. Effectively a funeral plan takes inflation out of the equation for the funeral plan holder.

So why did I get dad a funeral plan and not just save with an ISA? Well because interest rates are way lower than inflation. I read a report somewhere when I was researching this which showed funeral costs have gone up by an average of 7plus% in recent years. If anyone here has a savings account that gives them a return anywhere close to 7%, please let all of us know!

If I was you, I’d compare Golden Charter, Co-Op and Dignity before making up your mind about which plan to buy. I bought a Golden Charter charity plan because of price, and most importantly, they were the only company that let me choose the same funeral director that looked after mum a few years ago, just like dad wanted.