Funeral Costs

No-one likes to think about their own death, let alone talk about the cost of dying, but there’s no escaping the fact that funerals are expensive.

The average charge for a funeral director now stands at £1,515, according to The National Association of Funeral Directors – and that’s before other costs, such as the coffin, have been factored in; overall, the average funeral costs £2,700.

The soaring cost of dying is prompting more and more people to make provision for their own funeral to ensure their families are not left with the strain and responsibility at what can be a very difficult and emotional time.

Funeral insurance

It is now possible to take out insurance to cover funeral costs. Funeral plans, available from a funeral plan provider or local funeral director, usually guarantee to cover the cost of a funeral director. Some also cover things such as cremation costs, minister, organist, burial fees and grave-digging fees as standard; other plans offer tiered levels of cover.

Think carefully

With households budgets stretched to their limits, you need to think carefully before signing up, as these plans can come at a premium – and can be pretty complex.

Firstly, as the costs that are covered can vary considerably between plans, you need to check with your provider exactly what you are getting for your money.

Some only cover a small proportion of the actual funeral costs, and most will not cover additional expenses such as flowers, headstones, memorials or catering for the wake.

You also need to understand exactly how much you are paying. Generally speaking, you are offered the option of either paying for the whole plan upfront, or in monthly instalments for up to five years – although you could end up paying a premium by opting to spread the cost.

While funeral insurance can work for some individuals, it doesn’t work for everybody – so you need to be sure it is the right choice for you. For example, if you start paying into a plan in your 20s, but live until you are 100, you may well end up having paid more to your insurer than the amount your funeral actually ends up costing.

Also watch out for cancellation costs for terminating a policy.

The state option

For low-income families or individuals receiving benefits, there is still an option for the Government to subsidise funeral costs.

If you need help to pay for a funeral you’re arranging, you may be able to get a Funeral Payment from the Social Fund. However, be aware that if you go down this route, you might have to repay some or all of it from the estate of the person who died. The “estate” refers to any money, property and other things that the deceased person owned.

Other options

Aside from funeral insurance or relying on the State, there are other options to consider.

A simple way to build up funds is by squirreling a little money each month into a savings account such as an individual savings account (ISA). You can save up to £5,340 into a cash ISA this tax year (the tax year ends on 5 April 2012), and the major advantage is that these accounts are tax-free.

Whole of life insurance policies

You could also consider arranging a more extensive life insurance policy – such as an “over-50s” plan – a type of “whole of life” policy.

These life insurance policies are designed to cover you for your whole lifetime – including funeral costs. They pay out only when the policyholder dies, when the dependants receive a lump sum, which is usually tax-free.

But once again, you need to read the small print, such as the amount of payout you will get, and whether the premiums are guaranteed (so you don’t face sudden increases.)

As with funeral plans, there is a risk that if a policyholder could end up having paid far more for the policy than the lump sum that their relatives collect when they die.

Term life insurance policies

When it comes to life insurance, the alternative to a whole of life policy is a term policy.

This is the simplest and cheapest form of life insurance, and pays out a lump sum if you die during the chosen period.

You can choose between “level” term life insurance where the payout is a fixed amount, and often index-linked, and “decreasing” term insurance, which is usually a little cheaper, as the amount to be paid out decreases over time.