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Life insurance and funeral planning

Our guide to funerals and life insurance explains the different ways you can pay for a funeral. We also look at the kinds of insurance that cover funeral expenses.
Did you know that the average cost of a funeral in the UK is £3,989? (Royal London National Funeral Cost Index Report, 2019). One of the many reasons people take out life insurance is to help pay for this expense. That means their loved ones won’t have to pay for it themselves. 

Does life insurance cover funeral costs?

Life insurance can be used to cover funeral costs with the lump sum that is paid out when the policy holder passes away. You could, for example, set aside 10% of the payout for funeral costs. The beneficiary could then use this money to cover the related fees. It’s normally up to the beneficiary to decide what they do with the life insurance payout. They’re not obliged to spend it on the funeral.

If you have a specific funeral idea in mind, make sure you speak with your beneficiary, so they know your wishes. This way they can then use the life insurance payout in the way you’d like. Some insurers offer funeral life insurance add-ons to their policies. Life insurance with funeral cover sets a certain amount of money aside to pay for the funeral. This means you’ll be sure that the funeral will be covered with the funds.

Covering funeral expenses

The two main life policies can help cover funeral expenses:

Term life insurance
Term life insurance provides coverage for a set number of years. If you passed away during that time, your loved ones would receive a payout. This could be used
to cover funeral costs.

Whole life insurance
This kind of cover lasts your whole life. The premiums tend to cost more than term insurance as the payout is larger and guaranteed. This is so long as you meet the terms of your insurer. A larger payout means more money available to cover the funeral. 

Paying for a funeral without life insurance

There are a few different ways to do this. The most straightforward is to set aside money for the funeral each month. Remember that when you pass away your bank accounts will be frozen. Your family won’t be able to access the funds until your will has been executed. This might be after the date of the funeral itself. So, you should arrange with a loved one so they can access the money. The simplest option is to set up a joint bank account together so they can then use the money you saved. Remember that funeral costs can rise. So the amount you’ve saved for today might not be enough in 10, 20 or 30 years time. Another option is to rely on your family to pay for the funeral.

This is an option if your loved ones are financially independent. If not, you could reimburse them through your will if you have one. You could also take out a pre-paid funeral plan. Essentially you are buying a funeral in advance. You can either pay monthly or a one-off upfront fee. In general, funeral cost go up over time, but with a pre-paid plan you’ll have locked in today’s price. This could save you money in the long term. If your family are on qualifying benefits, they might be able to apply for a Funeral Expenses Payment. This is a lump sum that can cover various costs relating to the funeral. It currently pays up to £1,000 if you passed away on or after 8 April 2020 (HMRC). Last of all, there are options from the state. For people who don’t have family or savings, your local authority provides a public health funeral. This will be a basic ceremony with a cremation. 

What is the difference between life insurance and funeral cover?

Life insurance and funeral cover both pay out a lump sum when you pass away. The difference is about how the payout can be used. If you have life insurance, your loved ones can use the money on anything they want (including a funeral). With funeral cover, the payout must be spent on a burial or cremation. In either case, having cover lessens the financial burden. Life insurance normally pays out more than funeral cover so your premiums may be higher. They are also regulated by the Financial Conduct Authority (FCA) giving you extra protection.

Funeral cover is often bought directly from undertakers. This type of cover isn’t FCA regulated. This means if there’s a dispute, it might be harder to get it resolved. If you’ve paid off your mortgage and no one depends on you financially, funeral cover might be the better option. It will mean your loved ones don’t have to worry about paying for the interment or cremation. If you still have significant debts or people who rely on your income, life insurance might be preferable. The beneficiary could choose to spend the money as they wish. If they’re financially stable, they could use the money to pay for a larger funeral. But if they need the money for other things, they could choose how they split the money.

Do I need to cover funeral costs?

You don’t have to cover your funeral costs. But it is worth thinking about if you can afford it. The death of a loved one is a very challenging time. Knowing that there is money available to pay for the funeral will be a relief for your loved ones. It can, for instance, mean they don’t go into debt to pay for it.

If you can’t afford it, then there are other ways the funeral can be paid for. As noted above, your local authority may also help pay for funerals.
It’s a difficult conversation, but it’s worth speaking with your loved ones whatever your plans. By letting them know your funeral wishes, they’ll have a clearer idea of what to do when the time comes. 

Relevant guides and articles

  • Whole of life guide

    Whole of life insurance guarantees a payout to your loved ones when you die. Find out how this cover can protect your family's financial security. 

  • Term life guide

    Term life insurance covers you for a period of time. Find out everything you need to know about term life cover and whether it suits your needs in this guide. 

  • Joint life insurance guide

    How is joint life insurance different to single cover? Find out the answer to this question and learn all about whether this is the best option for you and your partner.