Millions of families using over 50s plans to cover the cost of a funeral could find themselves with a hefty bill when their loved ones die, according to new research from Co-op Funeral Care.
Over-50s plans are a form of life insurance that pay a fixed lump sum when you die. There is no medical underwriting and all applicants that meet the age criteria (typically 50-85) are accepted.
According to Co-op, 78% of people taking out the plans do so to cover the cost of their funeral. However, it is warning that pay outs will often not be enough to cover the bill, with average policyholders facing a £1,525 shortfall.
More than half of the people relying on the plan to cover the costs of their funeral were not aware that there was likely to be a shortfall.
Each year 380,000 adults take out over 50s plans. The policies should in theory provide reassurance to the one in eight UK adults that have no savings at all and the one in four that has less than £1,000 put away.
However, for many of these individuals a funeral plan that is specifically designed to cover the costs of undertakers, burials or cremations and other associated costs could be a better option. Yet the Co-op research found there was a lot of confusion surrounding what the different policies were for and what they covered.
A quarter did not understand the difference between over 50s plans and funeral plans and one in five thought an over 50s plan was a cheaper alternative to a funeral plan. More than a third (37%) also liked the fact that they could pay for their over 50s plan in monthly instalments rather than paying a lump sum upfront, yet this option is also often available with funeral plans.
Matt Howells, managing director of Co-op Legal and Later Life Planning, comments: “Our research shows that many people take out over 50’s plans to cover the cost of their funeral, but are unaware that some over 50’s plans are not linked to inflation. This means that it’s more than likely that loved ones will be left with a financial shortfall to cover the cost of the funeral.
“What is more, people opting to pay for their over 50’s plan because it’s a way of spreading the cost, may not have thought about other options such as those funeral plans which cover the full cost of a funeral, and offer a monthly payment option at the same time.”
However, even though funeral plans may be a better option that an over 50s plan, it’s still important to shop around and do your research as there are vast differences in the products available.
In July last year, a report from Fairer Finance claimed providers often use pushy sales tactics and that buyers often do not understand what they are buying, with not every policy guaranteed to meet all costs.
Co-op highlights the difference between funeral plans and over 50s plans:
|Pre-paid funeral plans||Over 50's cover|
|Can I pay monthly?||Yes||Yes|
|Does it protect against funeral inflation?||Yes||No|
|Is it clear what funeral costs will be covered?||Yes (Shop around as funeral plan providers vary)||No|
|Will I get to specify my wishes to get the send-off I want?||Yes||No|
|Does it offer support to me and my family from when I buy the plan to the delivery of my funeral?||Yes||No|
|If I cancel, will I get my money back?||Yes (less a cancellation charge see T&Cs)||No (dependent on the insurance provider)|
|Is a medical required?||No||No|
|Is the pay-out guaranteed to be put towards paying the cost of my funeral?||Yes||No|
Source: Co-op, February 2018.