Is it worth getting funeral benefits when getting life insurance, or is it a better deal to increase the cover amount?
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I know funerals are expensive, and I do not want to burden the family, but I wonder if it is smarter to just increase my cover amount by the cost to have a funeral.
pokerGURU
1 year ago
Expert Financial Adviser Answer
Paul Ross DipPFS CII(MP&ER)
answered 1 year ago
Assuming you've got a plan in place, then it is best to increase the existing plan, but only if the insurer allows it. With many you have to wait for a special event to occur such as a marriage, birth of a child or moving house. So, with this in mind, if your health is still good, it may be best just to cancel the existing plan and start a new plan with the correct sum assured. But take care not to cancel the existing plan until the new is in force.
However, if you have a term assurance plan, this will expire at some point, as they are designed for fixed terms. If you're looking for funeral expenses to be covered, you may want to consider a plan just to cover these costs. Dignity offer a plan where you pay for your funeral expenses over a 2 year period, if memory serves me right, by means of a monthly payment and the funeral expenses are covered, irrespective of inflation
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However, if you have a term assurance plan, this will expire at some point, as they are designed for fixed terms. If you're looking for funeral expenses to be covered, you may want to consider a plan just to cover these costs. Dignity offer a plan where you pay for your funeral expenses over a 2 year period, if memory serves me right, by means of a monthly payment and the funeral expenses are covered, irrespective of inflation
Expert Financial Adviser Answer
Dr David Carter FPFS
answered 1 year ago
The likelihood is, in fact, that all of your existing plans will be 'term' plans, each of which will end at a specific date unless, of course, a claim has been made beforehand. They are not suitable for this purpose (unless, unhappily, you know that you will die whilst they are in force). Furthermore, as Paul has noted, you may not be permitted to increase them, anyway.
Funeral plans are 'whole of life' plan - which will continue until you die, without a specified end date. If you have a whole of life plan in place already, then it will probably be because you have sufficient wealth to have a potential inheritance tax liability - in which case I suspect that your estate would be able to meet the costs of a funeral without any problem.
If you don't have an inheritance tax liability and you do have a whole of life plan, then unless you have a need for the insurance, simply use your existing plan - perhaps even reducing the amount covered if it is too high (no medical questions are asked when you do this!)
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Funeral plans are 'whole of life' plan - which will continue until you die, without a specified end date. If you have a whole of life plan in place already, then it will probably be because you have sufficient wealth to have a potential inheritance tax liability - in which case I suspect that your estate would be able to meet the costs of a funeral without any problem.
If you don't have an inheritance tax liability and you do have a whole of life plan, then unless you have a need for the insurance, simply use your existing plan - perhaps even reducing the amount covered if it is too high (no medical questions are asked when you do this!)
Expert Financial Adviser Answer
Richard Salter
answered 1 year ago
I would agree with both contributors here. The trick is to know that the cover will be in place when you die - so that it will indeed pay out just as funeral expenses are incurred. The only way to achieve this is via what is called 'Whole of Life Assurance' (WOL) or a specific funeral plan.
Note WOL assurance is called 'assurance' , rather than insurance, because - so long as you keep paying the monthly premiums you can be assured that you will continue to have life cover.
Whilst WOL cover is more expensive than cover for a defined term of only say 20 years - you have the peace of mind that it will eventually pay out. How long you live however is so unsure that all WOL assurance plan providers reserve the right to increase your WOL insurance premiums at regular reviews the longer the policy runs for. You should therefore expect to see premiums rise at some of these plan review dates as the risk of your dying increases the older you get!
Finally where WOL cover is being taken out it is often all the more important to consider writing the plan into trust so that the insurance payout, when added to the value of the rest of your assets forming your estate does not itself create or add to any inheritance tax liability - imposed when you die worth more than £325,000.
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Note WOL assurance is called 'assurance' , rather than insurance, because - so long as you keep paying the monthly premiums you can be assured that you will continue to have life cover.
Whilst WOL cover is more expensive than cover for a defined term of only say 20 years - you have the peace of mind that it will eventually pay out. How long you live however is so unsure that all WOL assurance plan providers reserve the right to increase your WOL insurance premiums at regular reviews the longer the policy runs for. You should therefore expect to see premiums rise at some of these plan review dates as the risk of your dying increases the older you get!
Finally where WOL cover is being taken out it is often all the more important to consider writing the plan into trust so that the insurance payout, when added to the value of the rest of your assets forming your estate does not itself create or add to any inheritance tax liability - imposed when you die worth more than £325,000.
Expert Financial Adviser Answer
Darren Smith
answered 1 year ago
there have been some constructive comments already made on this topic but the key thing when paying in advance for funeral fee plans is to know what backs them up. as you (clearly) will not be around to make the claim you need to ensure that the provider is appropriately authorised by the FSA and also you need to let you family know that you have taken out the plan - all too often these things are overlooked as families often panic about money but if you leave a letter or note with your will, at least your family will know that they dont need to worry financially about the cost.
i also agree with the notion of placing single life policies in trust not only to avoid IHT (but this is rarely an issue when the policies are to benefit spouses) the more immediate need is to get the payment swiftly.
by placing a policy in trust, it is outside of the estate from inception which means that when a claim occurs for death, your family do not have to wait for the probate process to complete which can be lengthy especially if challenged.
a plan held in trust will normally be paid out very quickly to the trustees upon verifying the policy details and submitting the death certificate.
this small step can often save the family home from repossession and clear any other debts quickly so that your family can deal with your loss and not have to panic about money.
the shameful fact is the large number of single life plans NOT in trust because the salesman couldnt be bothered (they dont "get" anything for it) and because bank staff / comparison websites etc dont give advice!
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i also agree with the notion of placing single life policies in trust not only to avoid IHT (but this is rarely an issue when the policies are to benefit spouses) the more immediate need is to get the payment swiftly.
by placing a policy in trust, it is outside of the estate from inception which means that when a claim occurs for death, your family do not have to wait for the probate process to complete which can be lengthy especially if challenged.
a plan held in trust will normally be paid out very quickly to the trustees upon verifying the policy details and submitting the death certificate.
this small step can often save the family home from repossession and clear any other debts quickly so that your family can deal with your loss and not have to panic about money.
the shameful fact is the large number of single life plans NOT in trust because the salesman couldnt be bothered (they dont "get" anything for it) and because bank staff / comparison websites etc dont give advice!
