The difference between over 50s plans and pre-paid funeral plans

BBC’s The One Show turned the spotlight on over 50s plans also known as funeral expenses plans or whole of life insurance plans. Fronted by Gloria Hunniford, the feature included a man who had paid approximately £2,300 for an over 50s policy which paid-out £1,200 on his death.

There is still a lot of confusion about how over 50s plans and funeral plans work. The information below provides a general guide.

Over 50s plans

(also known as funeral expenses plans and whole of life plans)

HOW THEY WORK

• An over 50s plan is a life insurance policy which pays out a fixed lump sum amount when you die.
• They are typically purchased with funeral costs in mind, hence why they are often referred to as funeral expenses plans.

BENEFITS

• An over 50s plan could work to your financial advantage if you die early in the life of the policy because your claim will be for more than you have paid in.
• An over 50s plan can be more flexible than a funeral plan as the money could be used for something other than a funeral although typically over 50s plans are purchased to cover funeral expenses.
• Over 50s plans tend to guarantee acceptance without the need for complicated medical forms or health checks (as do funeral plans).
• Monthly premiums are low which make them an affordable option.
• They are guaranteed to pay out from the day you arrange the policy but please check the small print as this can vary.

DRAWBACKS

• You could end up paying more in monthly premiums than the plan pay-out value if you live longer than expected for example.
• If you stop paying, you may find there is no cash-in value – many of these plans require you to keep paying until the end of your life.
• When inflation increases the cost of funerals, you may find your funeral costs more than your insurance policy is designed to pay out.

Pre-arranged funeral plans

(also known as pre-paid funeral plans and funeral plans)

HOW THEY WORK

• With a funeral plan you pre-arrange and pre-pay for your funeral services and select your funeral director in advance. When the time comes the money is paid directly to the funeral director for the purpose of carrying out the funeral.
• Funeral plan funds can be held either in trust funds or whole of life policies. The latter are subject to regulation by the Prudential Regulation Authority and the Financial Conduct Authority.
• A pre-arranged funeral plan is typically split into two parts – your funeral director’s costs and third party costs known as disbursements.

BENEFITS

• A pre-paid funeral plan enables you to select your funeral director and the funeral services you require in advance which can reduce the worry for your remaining family members.
• Funeral plans tend to come with guaranteed acceptance without the need for complicated medical forms or health checks.
• Most funeral plans are available as lump sum plans or regular monthly instalments.
• Most pre-paid funeral plans guarantee to cover your funeral director’s costs so there is nothing more to pay regardless of how long you live or what happens to the economy or inflation in the meantime. This can benefit your family financially.
• A funeral plan guarantees that your funeral director’s costs are covered no matter what happens to prices in the future. This gives you some protection against inflation.
• A funeral plan allows you to set out your funeral wishes and pre-select your funeral director so you family know what you want and have access to expert help and advice at the time of the need.
• With most funeral plans if you cancel the plan you will receive a refund less any cancellation fees which should be clear in the terms and conditions.

Choosing the right product will depend on your individual circumstances but we hope this quick summary of the key product differences is helpful.

As with any financial product, please read the small print carefully. The information above is provided as general guide and product terms vary.