Pre-paid funeral plans: what to check before signing

A pre-paid funeral plan is a contract under which you pay now, in a lump sum or by instalments, for a funeral to be provided later.

The appeal is genuine: fixing the cost, sparing the family the decisions, and knowing it is handled.

The risks are also genuine, and there is history here worth knowing.

What has gone wrong

Pre-paid plans have been the subject of regulatory action in several countries.

The problems identified have included: providers failing and customers losing money; plans that did not cover what customers believed they covered, particularly third-party costs; aggressive and misleading selling, including cold calling; and high commissions to intermediaries built into prices.

In the United Kingdom, the sector was brought under financial regulation in 2022 after an investigation identified consumer harm, and a number of providers exited the market. In other jurisdictions regulation varies from strong to minimal.

The lesson is not that plans are always a bad idea. It is that the protections depend entirely on the regulatory regime and the specific contract, and that both need checking.

How the money is held

This is the first question and it determines what happens if the provider fails.

Trust-based plans place your money in a trust, separate from the provider's own assets, managed by trustees.

Ask: is it an independent trust, who are the trustees, is it actuarially reviewed, and is the trust adequately funded relative to its liabilities? An underfunded trust is a real risk.

Insurance-based plans use the payments to buy a whole-of-life insurance policy that pays out on death.

Ask which insurer, and whether the payout is guaranteed to cover the funeral or merely a fixed sum that may prove insufficient.

Plans where the provider holds the money directly are the highest risk and should generally be avoided.

What is actually covered

The most common source of disappointment.

The funeral director's own services are usually covered and usually guaranteed.

Third-party costs — crematorium or burial fees, clergy, doctors' fees where applicable — are frequently either excluded, or included only up to a fixed allowance that may not keep pace with actual costs.

These are a substantial share of the total. A plan covering only the director's services may leave the family with a significant bill.

Ask specifically: are disbursements included, are they guaranteed, or is there an allowance, and what happens if actual costs exceed it?

The burial plot, which is generally not included and is one of the largest costs in a burial.

Memorials and headstones, generally excluded.

Catering, flowers, notices, generally excluded unless specified.

The other questions to ask

What if I move? Plans tied to a specific funeral director may not transfer, or may involve a fee. If you move to another region or country, check the position.

What if I change my mind? Cancellation terms vary. Some plans have substantial cancellation charges, particularly in the early years, and some are non-refundable after a cooling-off period.

A cooling-off period is legally required in some jurisdictions.

What if the provider fails? Is there a compensation scheme? In regulated markets there may be; in unregulated ones there may not.

What if I die abroad? Repatriation is expensive and generally not covered.

How much of my payment goes to commission? Historically, a substantial proportion in some markets. Regulation has restricted this in some jurisdictions.

Is the plan transferable to another provider?

The alternatives

Saving separately. Money set aside in a savings account, earmarked for the purpose, with the family told about it.

The advantages: full flexibility, no counterparty risk, and the money is yours if circumstances change. The disadvantage is that it does not fix the cost against inflation, and the funds may be tied up in the estate initially, though banks in many jurisdictions will release funds for funeral costs before probate.

Over-fifties life insurance policies marketed for funeral costs. These are widely sold and frequently poor value — many pay out less than the total premiums if you live long enough, and cover typically ceases if payments stop.

Read the terms carefully, particularly whether premiums continue indefinitely and what happens if you outlive the expected term.

Simply writing down your wishes and telling the family, without prepaying. This achieves the main non-financial benefit — sparing them the decisions — at no cost and no risk.

For many people this is the better option, particularly combined with earmarked savings.

If you have an existing plan

Check that the provider is still trading and still regulated where regulation exists.

Check that your family knows the plan exists, which provider holds it, and where the documentation is. Plans that nobody knew about are not used, and this happens.

Review what it covers against current costs.

The plainest advice

Do not buy from a cold call. Do not buy under time pressure. Read what is covered rather than what is advertised. Prefer regulated providers where regulation exists.

And consider whether what you actually want is to spare your family the decisions, which can be achieved by writing them down for free.

Regulation of pre-paid funeral plans differs substantially by country and has changed recently in several. Check the current position and the provider's regulatory status before purchasing.