In March 2022 a large funeral provider fell into administration, leaving its 46,000 customers worried about whether their prepaid plans would be honoured or refunded.Some eight months later, and many remain in the dark.

The firm in question, ironically named Safe Hands, was one of many companies operating in a sector that was previously unregulated.

On 29 July 2022 prepaid funeral plans became regulated by the Financial Conduct Authority (FCA).

This means that 26 providers offering approximately 1.6 million plans – which make up 87 per cent of the whole market – are now under the FCA’s authorisation remit.

What does regulation mean for you?
The FCA says regulating funeral plans will encourage providers to raise their standards, giving consumers more protection should things go wrong. There are already several new rules that funeral plan providers must follow.

These are:

  • A ban on cold calling – companies who make unwanted and unsolicited phone calls about funeral plans could face heavy fines.
  • A ban on commission payments to those who sell funeral plans, such as funeral directors – the FCA says the aim here is to ensure products offer “fair value”.
  • A requirement for the plan to deliver a funeral unless the customer dies within two years of inception, in which case a full refund must be offered.
  • Membership of the Financial Services Compensation Scheme
  • Membership of the Financial Ombudsman Service

Has every provider applied to be regulated?
In a word, no.
A number of firms have decided to exit the market, while others have so far opted against applying for authorisation.

The FCA warns that consumers should not buy a plan from these firms unless they become authorised in the future. Any authorised firms will appear on the FCA’s register.

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How do funeral plans work?
In its most basic form, a funeral plan allows people to pay for their funeral upfront to relieve loved ones from footing the bill.

The big benefit of prepaid plans is that you can pay for their funeral at today’s cost. For instance, a customer pays £4,000 for a funeral plan, and dies 10 years later when, due to inflation, the cost of an equivalent plan has risen to £7,000.

As they have paid for the plan upfront, their surviving family members won’t be asked for the extra £3,000.

Consumers can either buy one from a funeral plan provider or directly from a funeral director and have the option to pay in instalments or with a lump sum. The latter tends to be the most cost effective as there are no interest charges.

How much do they cost?
How much the plan costs will depend on what sort of funeral they wish to have. Providers offer plans with various levels of comprehension, enabling customers to make an off-the-shelf choice.

The most basic plans typically cover burial or cremation but little else, while the most comprehensive plans often include luxury items such as limousines.

Research from Sunlife, the insurance company, found that the average cost of dying is £8,864, with the average cost of a basic funeral just over £4,000.

This ranges from £1,700 for a direct cremation – where there is no service, mourners or ceremony – to £5,000 for a burial. A standard cremation sits in the middle with an average cost of £3,765.

What are the alternatives?
Prepaid plans are not the only means of paying for a funeral. Let’s look at a couple of other options:

1. Savings
Using money in savings is a common approach. One potential drawback is that before estate executors can access these funds, they generally must wait until a grant of probate is issued, which can take several months.

However, some providers and banks may allow the executors to access the deceased’s savings to fund funeral costs, with this amount deducted from the estate’s final value.
It can be beneficial to designate a specific account for funeral costs, accompanied by a note in a will confirming intentions for those funds.
2. Life insurance
A whole of life policy in trust is a further option.

If there is an inheritance tax problem and a life policy is being used to cover the bill, such as a whole of life plan, you could allocate a portion of this plan towards paying funeral costs.