What is the difference between a pre-paid funeral plan and an over-50s life insurance policy?
policies differ vastly from funeral plans in qualification requirements, pay
out and structure, yet it can be difficult to cut through the fine print to get
a clear picture of what is best for you. Local funeral director A.H. Cheater Ltd explains the differences between the two products to help you
discern which is best for you.
The phrase ‘later life planning’ incorporates just about every financial product that comes with the inevitability of ageing. Pre-paid funeral plans and over-50s life insurance policies are two distinct products that are included in this bracket. However it is important not to confuse the two. By identifying what it is you want to make financial provision for, you can more easily get the service you want.
What are they?
A pre-paid funeral plan is an agreement between a customer and a funeral director that a funeral service will be conducted in accordance with the wishes of the individual when the time comes. It may be that the funeral plan is purchased directly from a financial services company and not a funeral director, but it will be a funerary professional conducting the service when a funeral is required.
An over-50s life insurance policy is a financially-regulated product between an insurance company and the customer. It ensures that provided the customer upholds their requirements, the insurance company will pay out money to the next of kin or specified persons in the event of the customer’s death.
Number of instalments
The vast majority of pre-paid funeral plans are paid in one lump sum upon the customer taking out the plan. This ensures that the funeral director’s direct costs are paid for in advance and that financial provision has been made for the cost of a funeral service in advance. Of course most funeral plan providers give the option to purchase a funeral plan in instalments. However this is always on a pre-determined schedule of payments that make up the total costs of the plan. The funeral plan is only complete once all instalments have been paid.
Traditionally over-50s insurance policies require the holder to pay a monthly contribution to the insurance company so that in the event of their death, their family receive a payment to cover funeral costs. These payments often last up to thirty years, or until the policyholder dies. The insurance company will make a payment to the family of the deceased at any point during the life of the policy after a grace period, typically one year.
There are no qualification requirements, aside from being over the age of 18, when purchasing a pre-paid funeral plan because it is in effect purchasing a funeral service in advance. However most life insurance policy providers require a detailed health questionnaire is completed to prove that the applicant is not buying the policy in a poor state of health. The age of the policy holder is also hugely significant in the type of policy and the cost of each payment with over-50 life insurance policies.
With a funeral plan from a local independent funeral director, the plan is agreed along with specifications for a funeral and so when the holder dies, the funeral director activates the plan and the funeral is carried out. A funeral plan can only be redeemed in the event of the death of the holder and the money goes straight to the specified funeral director to ensure it is used to cover funeral costs. Depending on the contribution included in the pre-payment plan for third party costs, there could be a small amount left to pay at the time of the funeral service.
With over-50s insurance policies, the payout amount varies greatly depending on the level of cover specified when taking out the policy originally. For example, for those aged 80 and above, maximum payments are usually no more than £5,000 for those paying maximum monthly premiums and can be as little as £1,000. Over-50s insurance policies make money by assuming that statistically people will die at a certain time in their lives and setting the cost of this accordingly. One of the key differences here is the recipients of the payment are the next of kin or specified persons. The payment can therefore be spent however the recipients see fit. Not necessarily on a funeral service.
Peace of mind
Put simply, a funeral plan is a way to ensure that you have made financial provision for the decisions and costs of your own funeral. An over-50s plan is a way to make sure that in the event of your death, those you leave behind receive a sum of money to go towards whatever costs they have, this may include a funeral.