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How Much of a Risk are you Willing to Take?

Around 70% of people in a recent survey conducted by Matter Research said that it was a good idea to put money aside to pay for funeral costs, with 80% stating that they already had done something about it. The majority of these people have a whole-of-life insurance policy or money set aside in a specific savings account, which on the surface may seem a sensible and safe decision. But if the end goal is to pay for funeral costs, there are more risks to consider than you may think.

Insurance or a Roll of the Dice?

Do you want to take a risk on an insurance policy?
Do you want to take a risk on an insurance policy?

Let’s just break down what an over 50’s insurance policy is.  You generally pay regular instalments for the rest of your life to ensure a fixed sum is paid out upon your death.  The amount that is paid out is typically set when you take out the plan and this doesn’t normally change or rise with inflation. 

An insurance company is a business and they need to make profits. Usually they are insuring an event that may or may not happen, such as home insurance for theft, and they take the risk that more often than not it won’t happen and they get to keep the premiums that the customer has paid, which make up the profits.  However, with whole-of-life insurance what’s insured is guaranteed to happen, they will definitely have to pay out, so they need to make their profits some other way.  The way they do this is that you are committing to make payments into your policy for the rest of your life.  If you cancel or miss a payment, you lose everything that has already been paid. Ultimately the majority of people will pay more into their policy than they will ever get out, otherwise the insurance company wouldn’t make any profit and would go out of business.

So, is it actually correct to describe over 50’s policies as insurance if the event is guaranteed to take place?  What is actually happening is that the policy holder is taking a gamble on how long they will live.  There are a lot of calculations that go into working out the monthly payments and how much you will get back, but ultimately, if you live longer than the average life expectancy you will most likely end up paying more than you get back.  If however, you have a critical illness, or are a heavy smoker or you reasonably think you will have a shorter than average life expectancy, then due to the fact that there are no health or medical checks and anyone can take out an Over 50’s plan, then it may be a good option for you. Be aware that most over 50’s providers will have a moratorium and should you pass away within the first or sometimes the second year then it will not pay out and will just return any premiums already paid.

Not only is there a good chance you’ll end up paying more than you would ever get back, there is also an additional risk that the pay-out will not be enough to cover the funeral costs when the time comes as well.

It’s Safe to Save…. Or is it?

Are savings the safest options?
Are savings the safest options?

Yes, money put aside in a savings account is safe, and there isn’t a risk that you will get back less than you put in.  But there are other risks if you want your savings to pay for a funeral.  Interest rates are low, very low and the growth that you get on savings accounts is significantly less than the rate at which funeral costs have been going up over recent years. So, if you’re relying on the money in your savings account to be enough to cover funeral costs in the future, there’s a risk that you may have to keep topping it up in order to keep up with funeral costs.

The Safe Bet is a Prepaid Funeral Plan

A happy couple opted for a Prepaid Funeral Plan
A happy couple opted for a Prepaid Funeral Plan

One of the best ways to be sure that funeral costs are covered is to pay for them upfront today, and then you won’t have to worry about how much prices go up, or take a gamble on how long you live.  A prepaid funeral plan (sometimes referred to as funeral insurance) gives you certainty, that once paid for all the services included in the plan are covered no matter how much costs go up or how far in the future it is needed.  Be sure to pick a funeral plan that guarantees disbursements such as the cremation fee as opposed to providing a contribution which some do, otherwise you will still be taking a gamble as to whether the contribution will be enough to cover those services in the future.

The Dignity Prepaid Funeral Plan was launched 30 years ago and is the UK’s most popular funeral plan, having helped more than 585,000 people pay and plan for their funeral in advance – giving them certainty on what will happen rather than taking a risk.

Contact us or request a guide today for more information.