Life Insurance vs Funeral Plan

Planning for death isn’t always the most desirable thing to do with your day.

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Planning for death isn’t always the most desirable thing to do with your day. However, any responsible person will make arrangements well in advance. That’s why many people will consider their funeral – one of the most significant expenses for families after death.

The most typical concern is that people don’t want to burden their families with the costs of funerals after passing away. That leaves them searching for ways to cover the expenses, leaving their family to grieve in peace.

Life insurance and funeral plans are the two solutions that crop up when researching funeral cover. This guide will walk you through the differences and most frequently asked questions about both.

Life Insurance vs Funeral Plan

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We can define the two most common post-death insurance plans by getting a general idea of how they function.

What is Life Insurance?

Life insurance is a policy where a holder will pay a monthly premium in exchange for a guaranteed lump sum cash payout upon death. The plans usually come in three categories, fixed-term, whole-of-life, and critical illness cover.

The policy types mean that your beneficiaries get a payout should you pass away within a specific timeframe, an incognito window, or if you get seriously ill. Loved ones will receive money should you die under the conditions of the agreement, and they are free to spend the cash as they choose.

What is a Funeral Plan?

Funeral plans are fixed-term insurance that allows holders to plan and pay for their funerals, locking in and covering the funeral costs over monthly instalments. The plans are specifically for funerals, where there is no release of cash to loved ones.

Many persons opt for funeral plans to pay for and organise their desired memorials in advance, ensuring that the bereaved don’t get left with any burden. But the most critical factor funeral plans account for is to protect against the rising costs of funerals.

We’ve outlined the fundamental definition of life insurance and funeral plans, so what are the main differences?

What are the Key Differences Between a Life Insurance Policy and Funeral Plan?

Life insurance and funeral plans get put into the same pot because of their trigger event: they are action agreements post-death for the benefit of loved ones. However, they are two distinct types of projects, with the end action being inherently different from one another.

Life insurance and funeral plans get put into the same pot because of their trigger event: they are action agreements post-death for the benefit of loved ones.

Let’s look at the core differences between life insurance and funeral plans.

Life Insurance

Here are the distinctive features of life insurance:

  • Pays a lump sum of cash to a beneficiary should you pass away during the policy’s term
  • Beneficiaries can spend the money as they see fit.
  • Monthly premiums get paid for the policy’s duration (fixed-term or whole-of-life)
  • Varying policy types depending on preferences and circumstances

Funeral Plan

And the unique factors of funeral plans are:

  • It will cover funeral costs at the current market rate.
  • Funeral plans are only for funerals and unredeemable for cash.
  • There are flexible payment options such as paying upfront or in instalments.
  • Payments end after the quoted cost gets covered.
  • Guaranteed acceptance
  • You have choices of funeral plans depending on needs and budget.

You may have concerns about the finances for funeral costs after you pass away. But you also worry about spending money for loved ones, where weighing up the two options could be challenging. Many ask if life insurance policies will cover funerals and offer lump sums of cash.

Does Life Insurance Cover Funerals?

We compare plans from the leading life insurance providers

Life insurance policies don’t cover funerals directly, as beneficiaries can use the money received to pay for funeral expenses after death. However, many policies now have an add-on to deliver funeral expenses after passing away.

Suppose funerals are more concerned than the cash paid out to beneficiaries. In that case, a funeral plan might be a more suited option to your needs.

How Do Funeral Plans Cover Funerals?

How do they get covered if there’s no cash payout for funerals? Taking out a funeral plan means setting up details and payment terms with the provider, including choosing service options.

A prepaid funeral plan is available according to budget and must combat the increasing costs of memorials in the UK. Some of the most typical offerings include:

  • Direct cremation – A simple, straightforward funeral service that cares for the deceased, sends them for cremation and returns their ashes to their loved ones.
  • Burials – A service that simplifies a funeral with ministers performing services graveside. A hearse, coffin, and funeral director’s services get included.
  • Traditional funeral – The plan covers the conventional aspect of a funeral, including venue, minister’s services, hearse, coffin, mourners, and more.

So why do people pay for the funeral in advance when it’s a guaranteed expense? First and foremost, funeral plans save families the trouble of organising under challenging times. But the leading reason is that funeral costs increase annually and have gotten more expensive over the last 11 years.

The average funeral cost has risen by 121%, making the desired services unaffordable for many. Funeral plans lock in today’s funeral price to ensure families don’t get lumbered with the expenses, but again, do not receive any cash after you pass.

Consider how much you can expect to pay for a funeral plan today.

How Much Does a Funeral Cost?

The average funeral cost in the UK in 2021 was £4,184, continuing the trend of increased costs over previous years. The eye-watering amount is the key driver behind arranging a funeral plan in advance. Expenses can be significantly lower, and you’ll have complete control over the send-off you want to have.

Life insurance payouts can address the costs of a funeral. However, families will be subject to inflated prices without planning, though they have the benefit of additional finances to spend as they please.

Funeral plans average around £3,000, and most providers will offer flexible payment options like monthly instalments. The security and affordability of a funeral plan give much peace of mind that memorials get addressed by professionals after passing, relieving loved ones to mourn in peace.

So in regards to funerals, what would be a more suitable option? We can look at the advantages and disadvantages to deduce what would be better for your circumstances.

What are the Pros and Cons of Life Insurance and Funeral Plans?

The short answer to whether life insurance or funeral plans are better than each is that there isn’t one that trumps the other. Both have merits and can serve specific concerns or personal circumstances regarding paying for funerals.

See the pros and cons of life insurance and funeral plans below.

Life Insurance

Find the advantages and disadvantages of life insurance below.

  • PRO – Get a lump sum payout to spend as your family pleases.

Should you pass away in the agreed period of your life insurance policy, your family will receive a cash sum. There’s no restriction on how that can get spent, covering funeral costs or other expenses.

  • PRO – Your family will have financial protection should the unexpected happen.

One of life’s realities is that people can pass away unexpectedly. You can get peace of mind that there will be financial protection for your loved ones if the worst happens, offering cash to live in while they come to terms with the situation.

  • PRO – There are options for payouts that don’t necessarily mean your passing.

Many life insurance providers will offer add-ons or specific policies tailored to certain life scenarios that aren’t passing away. You can opt to receive payouts should you suffer a critical illness or unemployment. However, monthly premiums could be significantly higher.

  • CON – Not everyone can get life insurance.

There’s no guaranteed acceptance into a life insurance policy, as coverage relies on certain personal circumstances. Policies often have age limits or health prerequisites that can hinder your ability to get approved.

  • CON – Life insurance ultimately may not bring the value you want.

One of the most significant disadvantages of taking out a life insurance policy is that you risk paying in more than you get out of the plan. Should you choose a whole-of-life approach, you’ll effectively pay monthly premiums until you pass. That means you could end up paying in much more than you receive as a payout in the end.

Funeral Plan

Explore the positives and negatives of taking out a funeral plan here.

  • PRO – Lock-in today’s rates for funerals.

Since 2004 the costs of funeral plans have risen alarmingly, over doubling today. There’s an expert agreement that a price of a funeral in the UK in a few years could exceed £7,000 – a figure that many in the nation could not afford.

Funeral plans lock in today’s rates, meaning your family won’t have a colossal expense to consider after you pass away.

  • PRO – Guaranteed acceptance with no health history required.

Unlike life insurance, there are no prerequisites or barriers to getting accepted for a funeral plan. Unless there are some abnormal circumstances, you are guaranteed acceptance.

You won’t have to answer health questionnaires or face uncomfortable personal queries.

  • PRO – Plan the funeral you want.

Take solace that you’ll get the memorial you want after passing, all planned and executed by a professional funeral director. Your family can mourn during a difficult time when all the more complex arrangements get made for you.

  • PRO – Know exactly how much your funeral costs.

Instead of continually making payments until you die, you’ll only pay the outstanding amount for the funeral. That means there will be a fixed cost you’ll pay instalments towards, wrapping up after the quoted price gets paid.

  • CON – Funeral plans may be more expensive than life insurance.

Funeral plans would be more expensive than life insurance if you pass short-term. There are some variables to this scenario, such as the type of plan and coverage. However, generally, costs would be higher if you die sooner after taking a funeral plan.

  • CON- It’s a difficult discussion with your family.

A funeral plan is a product that covers funerals, meaning you’ll have to discuss death with family members. Loved ones will have to keep what happens when you die in the back of their heads to ensure the plan gets executed.

So there are significant pros and cons to funeral plans and life insurance policies that could make weighing up which is more suited. However, they are distinct in what they offer, so is it possible to take out both?

Can I Have Both a Life Insurance Policy and Funeral Plan?

Nothing stops you from having a life insurance policy and funeral plan running concurrently. Of course, you’ll have to be able to afford payments for both and qualify for a policy on the life insurance side, but in theory, yes, you can have both.

Taking out a funeral plan and life insurance policy means you’ll have your funeral expenses and organisation covered by the former. Your family can spend the payout from the latter as you please. We note that committing to both plans can get quite expensive. However, it can offer more conveniences than taking out one of the other.

But what if you don’t want either? Are these plans necessary to secure a funeral?

What If I Can’t Afford a Funeral or Any Coverage?

There are instances where families may not be able to afford the costs of monthly payments towards funeral plans and life insurance and the funeral costs themselves. In this scenario, the local authorities take responsibility for burial.

This event can often lead to confusion and uncertainty about what happens after death and not giving the deceased the send-off they deserve.

If this is a concern, contact a broker about your worries. There are many options in both funeral plans and life insurance that could tailor to your financial position.

Is Life Insurance or a Funeral Plan Necessary?

Naturally, there is no necessity to commit to life insurance or a funeral plan. They are both products that can help relieve the concern of the cost of memorials and spending money for the future.

If your estate or your family can cover the costs of funerals, neither may be necessary. However, if you are still curious about how funeral plans or life insurance can help, contact brokers that can consult on your queries.