Life insurance and funeral planning

Life insurance can be used to cover funeral costs with the lump sum that is paid out when the policy holder passes away. You could, for example, set aside 10% of the payout for funeral costs. The beneficiary could then use this money to cover the related fees. It’s normally up to the beneficiary to decide what they do with the life insurance payout. They’re not obliged to spend it on the funeral.

If you have a specific funeral idea in mind, make sure you speak with your beneficiary, so they know your wishes. This way they can then use the life insurance payout in the way you’d like. Some insurers offer funeral life insurance add-ons to their policies. Life insurance with funeral cover sets a certain amount of money aside to pay for the funeral. This means you’ll be sure that the funeral will be covered with the funds.

There are a few different ways to do this. The most straightforward is to set aside money for the funeral each month. Remember that when you pass away your bank accounts will be frozen. Your family won’t be able to access the funds until your will has been executed. This might be after the date of the funeral itself. So, you should arrange with a loved one so they can access the money. The simplest option is to set up a joint bank account together so they can then use the money you saved. Remember that funeral costs can rise. So the amount you’ve saved for today might not be enough in 10, 20 or 30 years time. Another option is to rely on your family to pay for the funeral.

This is an option if your loved ones are financially independent. If not, you could reimburse them through your will if you have one. You could also take out a pre-paid funeral plan. Essentially you are buying a funeral in advance. You can either pay monthly or a one-off upfront fee. In general, funeral cost go up over time, but with a pre-paid plan you’ll have locked in today’s price. This could save you money in the long term. If your family are on qualifying benefits, they might be able to apply for a Funeral Expenses Payment. This is a lump sum that can cover various costs relating to the funeral. It currently pays up to £1,000 if you passed away on or after 8 April 2020 (HMRC). Last of all, there are options from the state. For people who don’t have family or savings, your local authority provides a public health funeral. This will be a basic ceremony with a cremation. 

You don’t have to cover your funeral costs. But it is worth thinking about if you can afford it. The death of a loved one is a very challenging time. Knowing that there is money available to pay for the funeral will be a relief for your loved ones. It can, for instance, mean they don’t go into debt to pay for it.

If you can’t afford it, then there are other ways the funeral can be paid for. As noted above, your local authority may also help pay for funerals.
It’s a difficult conversation, but it’s worth speaking with your loved ones whatever your plans. By letting them know your funeral wishes, they’ll have a clearer idea of what to do when the time comes.