Why now could be the time to inflation-proof the cost of your funeral
The Consumer Price Index (CPI) measure of inflation jumped from 2.3% in March to 2.7% in April, figures this week revealed, meaning the value of the pound is eroded for savers, investors and retirees.
However, while consumers may feel the squeeze of higher prices on everyday goods and services, when it comes to funerals inflation is even higher, coming in at about 7% per year according to Avalon Funeral Plans.
Cremation costs are significantly lower than burials, but prices vary from region to region. A report by SunLife found the cost of a basic funeral has risen for the 13th consecutive year in 2016, standing at £3,897, a 5.5% increase in a single year and more than double the £1,920 reported in 2004.
If the cost of a funeral had risen in line with inflation over the last 13 years, it would stand at £2,540.
Jo Darbyshire, commercial director at Avalon, explains that with cremation, the higher cost is owing to crematoria having to pass on the costs of implementing new filters due to new ‘mercury abatement laws’ to stop mercury found in tooth fillings polluting the environment.
And for burials the rising cost is generally owing to supply, as burial grounds across the UK are filling up so plots are harder to come by. “Funerals tend not to be price elastic, and prices can rise without people starting to shop around,” she says.
Given the average age of death in the UK is 82, someone aged 47 would be exposed to 35 years of funeral price inflation. Based on a 4% inflation rate, that would cost £15,784 at the age of death.
Inflation-proof the cost of a funeral
While no one wants to think about death, it’s important to consider how your loved ones would pay for the cost of a funeral.
Funeral costs are often paid for by family, either out of the estate, through life assurance claims or family savings. But analysis by insurer Royal London found that funeral debt in the UK rose from £142m in 2015 to £147m in 2016, with the average person borrowing £1,601 from relatives or the bank to cover the cost.
Darbyshire says a funeral plan enables you to pay for and organise a funeral in advance, giving you emotional peace of mind and easing the financial burden left behind for loved ones.
Plus a big benefit of a prepaid funeral plan is that it can provide you with some protection against inflation. The proportion of inflation protection you’ll receive through a funeral plan depends on the provider, region and exactly what’s included in the contract. Below, we explain what elements you may be able to lock in at a lower price before the time comes for a funeral plan’s use.
Funeral plan providers secure a price with the funeral directors and typically, funeral plans fully guarantee the funeral director’s services. This typically includes arrangements for a cremation or burial, conveying the deceased from place of death to the funeral director or chapel of rest, caring for the body, as well as organising transport such as a hearse.
However, there are a number of third party costs, also known as disbursements, such as cremation costs, cemetery fee, minister or officiant fees and doctor’s fees (those typically out of the control of a funeral director), that may or may not be covered within a funeral plan. So it’s important to check this with the provider.
While some funeral plans provide a contribution towards disbursements, if the costs are not covered within the plan and the costs exceed the allowance, your loved ones may actually need to pay more once a funeral service is required.
Darbyshire explains: “The devil’s in the detail. It’s important to remember that you are paying for the service and it’s not a savings plan. There may be a balance to pay at the time of need if the third party costs exceed the contribution the plan has provided, which has been increased in line with inflation. This can typically happen in areas where third party costs are high, or if third party cost inflation exceeds inflation.”
She says there are some elements of a funeral that pre-paid plans generally don’t cover, for example the purchase of a burial plot (some are private or come under local authority control), flowers, obituary notices, and the costs of holding and organising a wake. However some funeral plans will cover burial fees, such as grave digging or opening up a family grave to add another deceased member to the area.
“You need to look carefully at what is included in a funeral plan – some don’t cover doctor’s fees or embalming. But as a customer you don’t need to worry about funeral price inflation as you have bought the service in the future. This means that no matter how much inflation increases, your plan is guaranteed to cover the elements included in the plan,” she says.
Avalon says that at present, funeral plans tend to be bought by over 50s, with the average age at purchase around late 60s. Currently, more plans are bought by women than men and customers can pay in a lump sum or in instalments.
Funeral Planning Authority (FPA) registered providers don’t hold the money you have paid into a plan. Instead it’s used to buy a whole of life insurance policy on the life of the plan holder or the money goes into a trust. The FPA explains the separation is to ensure that if anything were to go wrong with the provider, the assets to pay for the funeral would be separated and ring-fenced.
Upon death, your family or an executor would need to contact the funeral plan provider (which is why it’s important to discuss your plans with loved ones) and it’s usual for the fund to be paid to the funeral director at the time of need.
According to the FPA there are more than 20 funeral plan providers and more than 210,000 plans were sold in 2016, up from the 183,000 sold in 2015 and 147,000 bought in 2014.
See YourMoney.com’s Prepaid funerals: what you need to consider for more information.