In this article, we outline what you should consider when choosing between a life insurance policy and a funeral plan. Both types of plans pay out in the event of death but there are pros and cons to each depending on your personal circumstances. We will describe how a life insurance policy and a funeral plan work as well as how these differ from one another so that you can decide which is better suited to your needs and budget.
You can jump ahead to the part where we discuss "How to buy life insurance" and get up to £100 cashback.
Is life insurance or a funeral plan best for you?
Whether life insurance or a funeral plan is best for you will often depend on your life stage and whether you have other needs for life insurance outside of paying for a funeral. During your working life, you are likely to buy term life insurance that covers both your mortgage and family needs and it is cheap and easy to include the cost of funeral expenses within this. As you start nearing retirement and your term life insurance starts to come to an end, you may wish to replace it with a funeral plan that could cover the cost of your funeral arrangements as and when you pass away.
Life insurance in general is designed to remove the financial burden of a person's death so you should only buy a life insurance or funeral plan if financial costs cannot be met otherwise.
UK funerals cost £3,953 on average according to the SunLife Cost of Dying report 2023 but can vary depending on location, type of funeral service and whether there are any optional extras such as flowers, cars, catering and so on.
What is a funeral plan?
A funeral plan is a type of life insurance that is specifically designed to provide funds to pay for a funeral and can help spread the cost as well as provide peace of mind that you can be protected against rising costs. It can also be referred to as an over-50s life insurance policy as many funeral plans are only available to people aged between 50 and 80 years old. There are a number of these types of plans available to buy and often they are very similar to a guaranteed whole-of-life insurance plan.
How do funeral plans work?
A funeral plan covers your life and pays out when you die, whenever that may be. Generally, you can choose the insured value - the amount of money that will be paid in the event of your death - up to £25,000. A funeral plan is usually only available to people over the age of 50 and offers guaranteed acceptance without the need to answer medical questions or require you to attend a medical exam to qualify.
Most funeral plans have a qualifying period meaning that you have to pay monthly premiums for a certain number of months before it covers you fully. The qualifying period for a funeral plan can be anywhere between 12 months and 36 months so it is worth checking the terms and conditions before you buy. If you die within the qualifying period, most funeral plans will only return what you've paid up to the point of your death unless your death was caused by an accident in which case some funeral plans return up to 1.5 times the payments that you made.
How much does a funeral plan cost?
The cost of your funeral plan is determined by:
- Your age at the time that you apply
- Whether you smoke
- The amount of cover you select
The payments for a funeral plan are usually made in monthly instalments and you'll need to pay these until your death, except where a plan becomes paid-up - some plans stop requiring payments if you reach age 90 or 95. There are also pre-paid options that can allow you to pay for your funeral in advance of your death.
Monthly cost of a funeral plan that pays £5,000
| Age 50 | Age 60 | Age 70 | Age 80 | |
| Monthly payment for a non-smoker | £12.00 | £19.00 | £30.00 | £63.00 |
| Monthly payment for a smoker | £20.00 | £31.00 | £51.00 | £75.00^ |
^this price is for £4,500 of cover
You can read more about the best and cheapest funeral plans in our article, "Which is the best Over 50s life insurance?"
What is life insurance?
Life insurance usually refers to term life insurance which is a type of life insurance that covers your life for a specific time period (term) and if you die within the term, a cash lump sum is paid either to your estate or to your nominated beneficiaries. Some life insurance policies will pay up to £10,000 in advance of a full claim being settled if the money is required to pay for a funeral.
How does a life insurance plan work?
Term life insurance covers you for a set amount of money and for a set number of years and is commonly bought to cover loans, mortgages and families so the cover amount is usually in the hundreds of thousands. Some people choose to add between £10,000 and £25,000 extra to cover the cost of funeral arrangements, which tends to only add a few pounds to the monthly premiums. However, the cover does eventually end so you have to think about replacing it with a funeral plan before it does so that you continue to be covered until the money is needed to pay for your funeral.
How much does life insurance cost?
Life insurance is cheaper than a funeral plan on a cost per £1,000 of cover basis and your monthly payment is calculated using:
- The amount of cover you choose
- The number of years you buy cover for
- Your age
- Whether you smoke
- Your health
- Your occupation
- Your lifestyle
Monthly cost of £200,000 level term life insurance for 20 years
| Age 20 | Age 30 | Age 40 | Age 50 | Age 60 | |
| Monthly payment for a non-smoker | £4.36 | £6.46 | £12.06 | £28.04 | £78.95 |
| Monthly payment for a smoker | £6.19 | £11.00 | £25.87 | £69.86 | £199.90 |
Monthly premiums above assume that you are in good health and do not participate in any dangerous activities
You can read more about term life insurance in our article, "What are the pros and cons of term life insurance?"
Life insurance vs Funeral plan
You should bear in mind that you can end up paying more into a funeral plan than it will pay out on your death depending on how long you live. On the other hand, term life insurance is likely to expire before you die and even though you can buy term life insurance that covers you until the age of 90, you cannot predict when your death will happen and you could end up paying for many years only for the life cover to expire before you die. Below we explain the key differences between a funeral plan and a term life insurance plan.
Funeral plan summary
- Pays out a cash lump sum when you die
- You generally need to be between 50 and 80 years old to qualify
- Guaranteed acceptance - no health checks are required to qualify
- Qualifying period of 12-36 months (you cannot claim during the qualifying period)
- Payments may be returned if death occurs during the qualifying period
- You can end up paying more into the plan than what pays out when you die
Life insurance plan summary
- You can buy it between the age of 18 to 85 years old
- Your health and lifestyle can increase the basic cost
- If you outlive the term of the policy you don't receive a payout
- You can consolidate the cover you need for other things like your mortgage and family with provision for your funeral
- Covers you immediately except for suicide in the first 12 months
Choosing between a life insurance or funeral plan
If you are between the age of 20 and 50 years old, it is likely you will have life insurance needs other than the cost of your funeral, so it is wise to top up the life insurance you need to cover other financial commitments to make provision for the cost of your funeral. If, however, you are over the age of 50 and only wish to cover funeral costs then a funeral plan is usually the better way to make this provision.
How to buy a funeral plan
If you are looking to buy a funeral plan then it is wise to speak to a specialist funeral plan adviser* who can search the whole market and talk you through the best options for you. They will also assist you to complete the necessary forms to ensure that the money is paid out to the right people so that they can access the payout quickly enough for it to be used for the funeral arrangements including funeral directors' fees.
How to buy life insurance
Alternatively, if you feel that term life insurance is better suited to what you need, you should speak with a specialist life insurance adviser* who will search the market and help you select the best cover for you as well as arrange for you to nominate your beneficiaries avoiding any inheritance tax liability. As a Money to the Masses reader, you will also receive up to £100 cashback.
If a link has an * beside it this means that it is an affiliated link. If you go via the link, Money to the Masses may receive a small fee which helps keep Money to the Masses free to use. This link can be used if you do not wish to help Money to the Masses and do not wish to qualify for the cashback referred to in the article.
