Which is better? Life insurance or a funeral plan? It’s a very personal decision and what you decide will depend on your personal circumstances and your budget. Below we’ll look at what life insurance and funeral plans cover, what the difference is between them, plus their pros and cons.
Please note: this article isn’t intended to offer financial advice. Before you take out a life insurance policy or funeral plan, always make sure you’ve read all the fine print and understand what you’re buying. If you’re unsure which is the best option for you, speak with a financial adviser or contact your local Citizen’s Advice office.
What is life insurance?
Life insurance is a type of cover that you pay for in monthly instalments. In the event of your death you then get a payout. This can be used by your family to pay for things like your funeral costs, your mortgage, and any debt you may have had. It can also be used as a gift for your family. You don’t have to use it to pay for a funeral, although many people do.
What is a funeral plan?
A funeral plan is a payment to a funeral director (or funeral plan provider) in advance to organise the key parts of your funeral. With a prepaid funeral plan there’s less for your family to pay for when they organise your funeral. And paying in advance also means that you pay for your funeral at today’s prices even if it costs more in the future.
It’s important to know that a funeral plan will only cover some parts of a funeral service. So family may still have to pay for certain parts in the event of your death, even if you have a funeral plan. Read more about what’s included as part of a funeral plan so you know exactly what’s covered.
What’s the difference between life insurance and a funeral plan?
Life insurance provides a payout in the event of your death and the money can be used in a number of ways. You can use it to pay for a funeral but you don’t have to. By comparison, with a funeral plan you pay specifically to organise your funeral in advance. You can’t use the funeral plan to pay for anything else.
Life insurance and funeral plans compared:
| Life insurance | Funeral plan |
| A lump sum payout in the event of your death that goes to family. | Covers the cost of your funeral at today’s prices. |
| You pay monthly instalments for the whole of the policy or until you die. | Pay it off in full or pay in instalments until it’s paid. |
| There may be things that change how much your monthly payments are and what lump sum your policy covers. This can be things like pre-existing health conditions and whether you’re a smoker or not. | Some age limits may apply. |
| Different types of cover available to suit your budget. | Different types of plan available to suit your budget. |
Life insurance vs funeral plans
Now you have a clear idea of what life insurance and funeral plans cover here are some of the pros and cons to consider.
Life insurance: pros and cons
| Pros | Cons |
| Life insurance is designed to help your family financially if you’re no longer around to provide for them. | Life insurance may not be affordable for everyone. If you have a medical condition this can push the cost of your monthly payments up. |
| The payout is designed to cover more than the cost of your funeral. But there’s no guarantee that it will. | Some policies offer a fixed payment. That means you could end up paying more into the policy than the payout is worth. |
| You can adapt some life insurance policies with extras like critical illness cover. (But this will cost more.) | Some policies have a fixed term. This means if you outlive the term you won’t receive a payout even though you paid into the policy for years. Make sure you check if the policy you’re taking out is whole life or fixed term. |
| A funeral plan guarantees that the majority of your funeral costs are covered at today’s prices. | It won’t cover absolutely everything you need for your funeral. Your family may still need to pay for extras like flowers, funeral notices and a wake. |
| You’ll know exactly how much you’ll pay in total. You can pay in full or spread the cost. But once it’s paid off you’re covered. | In the short term you could end up paying more for a funeral plan than life insurance. If you’re in good health your monthly costs for life insurance could be lower right now but keep in mind you’ll probably need to pay them for longer. |
| You can plan your funeral in the way that you’d like. | It may be uncomfortable to talk about what you’d like at your funeral in advance. |
What about over 50s life insurance?
Over 50s life insurance is a policy that’s specifically for people between the ages of 50 and 85. You’ll still pay monthly instalments for the cover and in the event of your death you’ll receive a payout. This type of policy is intended to help people who want to leave money behind to help with their funeral costs. But there are still a few things to consider when deciding if an over 50s policy is the right choice.
Here are a few things to consider:
- These plans usually have a limit on what your payout can be. But this will be different from one provider to the next.
- Most providers offer guaranteed acceptance if you’re aged between 50 and 85. This means you’ll be able to get the cover whatever your health is like. But your age can affect your payout and monthly payments. Your payout could be smaller than you expected. And your monthly payments could be higher.
- Most over 50s life insurance policies are not a fixed term. So you’ll pay monthly until you pass away. This means that you’re guaranteed a payout.
- Some insurers will put a waiting period in the fine print. This means that if you die within the first year of taking out the policy you won’t receive the payout.
Which is best: life insurance or funeral plan?
Your personal circumstances and your budget should help you decide which is the best option for you. If you’re in good health and you’re not a smoker you may find that paying for a life insurance policy is affordable. But if you’re older and have some pre-existing medical conditions you might find life insurance is too expensive. So a funeral plan may be a good alternative to cover funeral costs. But keep in mind that a funeral plan won’t provide your family with a lump sum of money to cover other costs such as rent or mortgage payments.
Whichever you choose, make sure you read all the fine print before you take out any insurance policies or funeral plans.
Can you get life insurance and a funeral plan?
Yes. If your budget allows it.
The funeral plan will ease some of the stress your family may feel in the event of your death. Your funeral arrangements will be taken care of. And they won’t need to worry about how to pay for it. The life insurance policy will then give your family some financial help to go towards rent or mortgage payments. Or it could be their inheritance to use how they wish.
When you’re looking into ways to pay for your funeral it’s worth weighing up all your options. Read our guide on how to pay for your funeral to make sure you’ve looked at all the possibilities before you decide on life insurance or funeral plans.
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