Funeral Insurance for Over 50s How Does It Work?

You pay a monthly premium and, provided the policy remains in force and a valid claim is made, the insurer pays an agreed amount of money after your death.

The important point is that funeral insurance does not normally buy your funeral in advance. It provides money. Your family can then use that money towards the funeral or for other expenses.

This makes it different from a prepaid funeral plan.

What is funeral insurance?

Funeral insurance is not necessarily a separate type of insurance.

In the UK, the term is often used to describe over 50s life insurance where the main reason for buying the policy is to leave money towards funeral expenses.

MoneyHelper describes funeral insurance as insurance that pays a fixed lump sum following death and notes that it is sometimes known as an over 50s plan.

Traditional over 50s policies are usually available without detailed medical questions.

You choose a monthly premium or amount of cover and the insurer tells you how much the policy will pay.

The policy is normally intended to remain in place for life, subject to its terms.

How does it work?

Imagine you want to leave £6,000 towards your funeral and other final expenses.

1. 1You take out an over 50s policy providing £6,000 of cover.
2. 2You then pay the agreed monthly premium.
3. 3When you die, someone makes a claim with the insurer.
4. 4If the claim meets the policy conditions, the insurer pays the amount due.
5. 5The person receiving the money can then use it towards your funeral.

They are not normally required to spend every pound on the funeral.

MoneyHelper confirms that the payout from an over 50s policy can be used towards funeral costs but beneficiaries can generally spend the money however they wish.

Does the insurance pay the funeral director?

Usually not directly.

A normal over 50s life insurance policy pays a cash sum.

Your family or whoever receives the money can use it to pay a funeral director.

This gives them flexibility.

They are not normally restricted to one funeral director or one specific funeral package simply because the money came from life insurance.

That is one of the main differences between funeral insurance and a prepaid funeral plan.

What is the difference between funeral insurance and a funeral plan?

The two products solve the same general problem in very different ways.

MoneyHelper specifically warns people to check whether a product advertised around funeral costs is actually an over 50s life insurance policy because the two products work differently.

Prepaid funeral plans have also been regulated by the Financial Conduct Authority since July 2022.

Does funeral insurance guarantee to cover the whole funeral?

No.

This is one of the most important points to understand.

The insurance pays the amount stated in the policy.

It does not normally promise that this amount will be enough to pay every future funeral expense.

Suppose you take out £5,000 of cover.

If your eventual funeral costs £6,500, there is a £1,500 difference that would need to be covered from somewhere else.

If the funeral costs £4,000, there could be money remaining from the insurance payout.

The policy pays the insured amount rather than whatever the funeral happens to cost.

What happens if funeral prices rise?

This can create a problem if your payout is fixed.

Imagine you take out £5,000 of cover at age 55.

You may not die for another 30 years.

If your policy still pays £5,000, that money may cover a smaller proportion of a funeral than it would have when you first bought the policy.

MoneyHelper highlights this issue and warns that over 50s payouts commonly do not rise with inflation.

If your main objective is paying for a funeral, check whether the amount of cover is fixed and think about how useful that amount might be many years from now.

Do you need a medical examination?

Traditional guaranteed acceptance over 50s policies normally do not require a medical examination.

Detailed medical questions are not usually required either.

This can make the cover accessible to people with existing health conditions.

You still need to meet the insurer's eligibility requirements, which usually include age and UK residency rules.

Some insurers may also ask whether you smoke because this can affect the amount of cover available.

Is there a waiting period?

Many guaranteed acceptance over 50s policies have an initial waiting period.

During this period, death from natural causes may not result in the full insured amount being paid.

Instead, the insurer may return the premiums that have been paid or make another payment specified in the policy.

Once the waiting period has passed, the full insured amount normally becomes available for a valid claim.

MoneyHelper advises checking the waiting period. Full cover commonly applies after the first year, although some policies use a two year period, so check the policy terms.

Some policies provide different cover for accidental death during the initial period.

Always check the actual policy rather than assuming every provider uses the same rules.

How much funeral insurance should you get?

Start with how much you actually want to provide.

• You might want the insurance to cover most of the funeral.
• You might only want it to make a contribution.
• You might also want additional money available for other immediate expenses.

For example, you could decide that you want £6,000 towards funeral costs and another £2,000 available for household expenses.

You can compare what it costs to obtain approximately that amount of cover.

You should also consider money you already have.

If you already have savings specifically reserved for funeral costs, you may need less insurance.

Can you pay more in premiums than the funeral insurance pays out?

Yes.

This is possible because the policy is insurance rather than a savings account.

If you had died earlier, the insurer could have paid considerably more than you had contributed.

MoneyHelper identifies the possibility of paying more in premiums than the eventual payout as one of the main disadvantages of over 50s life insurance.

What happens if you stop paying?

Your cover will normally end once any grace period in the policy terms has passed.

You would normally get nothing back, even if you have paid premiums for several years, because over 50s plans normally have no cash in value.

This makes affordability important.

A policy providing a larger funeral contribution is not useful if the monthly premium is too expensive to maintain.

Check how long premiums are payable and what happens if payments stop before taking out cover.

Is funeral insurance your only option?

No.

• You could save money specifically for funeral costs.
• You may already have enough savings or other assets.
• Your employer might provide a death benefit if you are still working.
• You could consider a prepaid funeral plan.
• You could also investigate standard life insurance, particularly if you need a larger amount of money for your family as well as funeral expenses.

MoneyHelper recommends considering existing savings and benefits rather than automatically assuming an over 50s policy is the best way to provide for funeral costs.

Funeral insurance or a funeral plan?

The simplest way to think about the difference is this.

If flexibility is important, an insurance payout gives your family money that can normally be used with the funeral director they choose.

If you want to arrange particular funeral services in advance, a regulated funeral plan is a different option to investigate.

Neither should be chosen simply because it has the word funeral in its name.

Look at exactly what you are paying for and what your family will receive.

Speaking to a life insurance adviser

If your main objective is leaving enough money for funeral costs, tell the adviser that clearly.

They can help you work out approximately how much cover you want and compare the cost of achieving it.

They can also explain whether guaranteed acceptance over 50s insurance or another type of life insurance may be appropriate for your circumstances.

Speak to a qualified UK life insurance adviser who can compare options available through their panel. 50Life.co.uk can introduce you to an adviser who can discuss your needs. 50Life does not itself give personalised advice.

Before choosing funeral insurance, make sure you know the amount that will be paid, when the full payout becomes available and how long you could be paying premiums.

Those three figures matter much more than the word funeral on the policy.