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Life insurance and funeral planning

Our guide to funeral planning explains how your life insurance can help to cover funeral expenses.

Did you know that the average cost of a basic funeral in the UK is £3,953? (SunLife Cost of Dying report 2023). 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.

In this guide, we’ll explore the different types of insurance you can use to do this. Also, we'll look at ways you can pay for a funeral if you don’t have any insurance.

Does life insurance cover funeral costs?

Life insurance payouts can help the beneficiaries to cover funeral costs. When the policyholder passes away, part of the lump sum that’s paid out can help to pay for the funeral. 

For example, you could ask the beneficiaries to set aside 10% of the payout for funeral costs and related fees. 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 legally obliged to spend it on the funeral.

But, if you’d like to plan your funeral, maybe 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.

Options to cover your funeral expenses

If you want reassurance that your life insurance policy will cover your funeral expenses, then you have a couple of options. 

Funeral life insurance add-ons

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.

Stand-alone funeral cover

Funeral cover can be purchased as a stand-alone product. Bear in mind that if you only have funeral cover, your loved ones will only be left with money towards the funeral expenses, and nothing else.

Policies covering funeral expenses

When it comes to funeral planning and life insurance, there are two policies that can help your loved ones cover the 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.

If you survive until the end of the term then the plan won’t cover funeral costs – therefore may be unsuitable.

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 you can plan and pay for a funeral without life insurance. The most straightforward is to set aside money for the funeral each month. Remember that when you die 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. 

But, with some well-thought-out funeral planning, you can ensure that your loved ones have access to the money. The simplest option is to set up a joint bank account together so they can then use the money you saved.

If you have the money to pay for the funeral but it’s tied up in savings, shares or assets, such as property, that won’t be available until after your passing. Then, you may have to rely on your loved ones to pay for the funeral and you can reimburse them in your will.

If you don’t have the money to cover your funeral expenses, then your family could cover the cost of the funeral. This is an option if your loved ones are financially independent and either earn enough money to pay for it upfront or have money in savings.

Or, 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 and your loved ones 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). It’s important to bear in mind that this may not be enough to cover all your funeral expenses.

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.

There are ways you can pay for a funeral without life insurance. But, if you have specific ideas in mind then a life insurance policy can make sure these are carried out. What’s more, 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. As a result, using life insurance to cover funeral expenses, or at least part of them, can help make up for the shortfall.

Do I need to cover my own 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.

Funeral planning can be a difficult conversation to have but it’s one worth having. By letting them know your funeral wishes, they’ll have a clearer idea of what to do when the time comes.

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. Eligible applicants may also be able to receive a lump sum towards the costs from the government.

What is the difference between life insurance and funeral plans?

Life insurance and funeral plans both pay out a lump sum when you die. 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 a funeral plan, 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. A funeral plan 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.

Is life insurance better than a funeral plan?

If you have significant debts, financially dependent family members or a mortgage, then life insurance is likely to be the preferable option for you. Life insurance payouts are larger and can be used to cover more. This means the beneficiary can spend the money as they see fit. 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, then they have options. 

But, if you’ve paid off your mortgage and have no financial dependants, funeral plan might be the better option. If the only expense your family will incur after your death is the cost of the funeral, then this type of policy may be the way to go. It means your loved ones don’t have to worry about paying for the interment or cremation.

Funeral planning FAQs

Life insurance payouts are not typically subject to income tax. But, if the policy has not been written into trust, then you could be liable to pay some Inheritance Tax. This is true regardless of what the money is used for. You should consult a solicitor for guidance about writing a life insurance policy into trust.
You can write your plans for your funeral into your will. This can help remind your loved ones of your intentions. But, funeral plans written into a will are not currently legally binding. This means that the beneficiary can override these wishes if they want to.
Early communication with your loved ones about your funeral plans can help ensure the payout is spent the way you intended. If you are particularly worried about the beneficiary not using the life insurance policy to cover funeral expenses, then you could purchase a funeral cover add-on to your existing life insurance policy. But, you will need to check this is a product your current insurer provides. Or, you can purchase a stand-alone funeral cover.

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.