Covering funeral costs: what’s covered with a funeral plan or life insurance?

Death is not the easiest topic to address. However, failing to think about how you will cover the cost of your funeral could cause further distress to your family in the event of your passing.

The price of funerals has soared by 90pc in the past 10 years and the average funeral now costs £3,693.  A report from the International Longevity Centre, a think tank, said that by 2020 the cost of a simple funeral could reach £5,226. With additional costs included, it could exceed £7,000.

Funerals have become so expensive that grieving relatives are looking at alternative ways to put their loved ones to rest. When John Wright’s mother died, he was told that a traditional burial would cost £5,300, so he chose to bury her in his garden.

Life insurance or a funeral plan could go some way to cover the cost, although they are unlikely to pay for everything.

Here is how the two plans work.

Life insurance

The purpose of life insurance is to provide for your dependants in the event of your death. The lump sum from a policy could pay for your funeral or cover some of the associated costs.

Standard life insurance policies also get more expensive as you get older, so many providers offer specific insurance for the over-50s. Policyholders must make monthly payments for the rest of their life to guarantee the agreed lump sum when they die.

Over-50s life insurance policies are usually available to anyone between the ages of 50 and 80 and they are guaranteed. Unlike with standard policies, there are no medical checks, although smokers may need to pay more.

The problem with an over-50s life insurance policy is that you live longer than expected, you could end up paying more in than you get out.

Another potential catch is that some policies may not pay out if you die within a certain time frame. For example, if you die within 12 months of taking out the policy, your family may receive only a refund of your premiums rather than the agreed benefit.

Telegraph Money looked at some of the biggest insurance providers and their over-50s policies to find out how much you would have to pay and how much would be covered. Each quote is based on a 55-year-old woman paying a premium of £20 a month. Only one insurer, One Family, asked for details about smoking.

Based on the providers above, you could overpay by thousands of pounds. Sun Life has no age at which the premiums stop, so you could be paying into your 90s, for example, if you live that long.

All of the policies above come with conditions.

For example, none will pay out the full sum if you die within the first 12 months of holding the policy unless your death was caused by an accident. With Sun Life the period is two years.  Instead, the providers will refund the premiums. Sun Life will pay out an amount equivalent to one-and-a-half times the premiums paid except in the case of accidental death.

In the case of a fatal accident, all providers have conditions.

All will refuse to pay out in certain scenarios, such as if death is a result of a criminal act, dangerous activity or related to alcohol or drugs.

Legal & General, Sun Life and LV= will pay the full amount if you die within 90 days after sustaining injuries. Aviva’s policy simply refers to death by “fatal accident”.

LV= will cover accidental death wherever you are in the world, while Aviva will not pay out while you are living outside Europe, the US, Canada, Australia or New Zealand.

Source: Daily Telegraph