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Life insurance or funeral cover - what is covered?

Life insurance or funeral cover - what is covered?

Which should you choose – life insurance to provide a lump sum for your loved ones in the event of your death, or funeral cover to pay for the cost of a service? We look at the different options available for life insurance and funeral cover.

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Life insurance or funeral cover – which policy should I choose?

Are you looking for a lump sum to help your loved ones financially if you are no longer around?

Life insurance pays out a lump sum to cover household bills and costs if you were to die and leave your family or loved ones short of income.

A funeral cover policy pays out to help meet the costs of a funeral when you die. It could help your family pay for the ceremony and other costs.

Does life insurance include funeral cover?

You can choose to buy a life insurance policy, or funeral cover, or both. Some life insurance policies include an option to buy funeral cover as an extra add-on to the insurance policy.

What is life insurance?

Life insurance is a policy for which you pay regular monthly premiums in return for a payout, should you die while the policy is in force. The amount of cover and the cost of the premiums are fixed when you take them out and neither changes during the term of the policy.

Why should I buy life insurance?

Most people buy life insurance if they have a mortgage, or dependants, or both. If you have a mortgage, the life insurance policy will pay out if you die. This would be helpful to your family who would be able to pay off some or all of the mortgage with the money, giving them some financial peace of mind if you were no longer around.

If you have dependants, such as young children or other relatives you care for or support financially, then you may take out life insurance to protect them should you die. The policy will pay out a lump sum which will help them financially when you are not around.

What do I need to know about a life insurance policy?

Your policy may not pay out if you have missed a payment or you're in arrears (you have missed one or more payments). Your policy will not pay out if it has reached the end of its term – that is, the length of the policy – as all life insurance policies have a fixed term.

You buy life insurance for a fixed time – anything from ten to 25 years. If you die while the policy is in force, your loved ones receive a lump sum payout. When the policy ends, you don't get a payout if you're still alive. It's a simple insurance policy, like home or car insurance. There's no investment element to it, and there's no payout unless you die while the policy is in force.

Which is the best life insurance?

The best life insurance is the one that meets your needs and can potentially pay out a sum to help your loved ones. You can buy mortgage insurance or separate life insurance. You want to be sure that the sum insured is enough to cover the potential costs.

Some, though not all, life insurance companies require you to provide medical details when you apply. If you already have life insurance it's worth reviewing the level of cover to make sure that you have enough protection for your family.

Does my life insurance policy cover my funeral?

Some life insurance policies have the option to add cover for funeral costs, but this isn't generally part of a standard life insurance policy.

You can buy standalone funeral plans, which aim to cover some or all of the costs of a funeral, or you can add it to your life insurance policy at an extra costs. You pay a monthly premium to the insurer whichever option you choose.

Should I buy a separate funeral plan to cover the cost of my funeral?

Funerals can be very expensive – even a simple ceremony can cost £3,000 to £4,000 or more and families are often shocked by the extra financial burden. A pre-paid funeral plan can help to spread the cost, although it's unlikely to cover the full cost of a funeral.

Your family will benefit from a payout at a time when they will be experiencing considerable emotional distress, and the fact that you already have a funeral plan in place will take away some of the strain. However, if you're going to have enough money left after you die, then you would not need a funeral plan as the costs could come out of your estate.

Some life insurance policies allow you to add a Funeral Benefit option to your cover, or you can buy a standalone Funeral plan. With a Funeral plan, there's no cash value until your family makes a claim in the event of your death. It's not a savings plan or an investment product and you don't have to take a medical test or provide any medical details when you take it out.

One thing to bear in mind is that funeral plans are not currently regulated by the consumer watchdog the Financial Conduct Authority, so you have less protection if things go wrong. Also, if you change your mind after you have taken out the plan it may be difficult to alter it.

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Do I need funeral cover or life insurance?

If you're single, have no dependants, and don't have a mortgage, then there is no need for you to have life insurance. If you do have people who would struggle financially without you, then buying life insurance means that your family wouldn't be left with a financial burden if you were to die.

In terms of a funeral plan, you may like the discipline of saving into a funeral plan, but you could just put some money away into an ordinary savings account instead, which would pay for your funeral costs when you die. That way, your family would be able to use the money without restrictions.

What is the difference between life cover and funeral cover?

Life insurance pays out on the event of your death if this happens while the policy is in force. A funeral plan helps you to put money aside to pay for your funeral costs. Life insurance will not pay out if the policy has ended, whereas the funeral plan is designed to pay out when you die.

You can have more than one life insurance policy if you circumstances change and you feel you need more cover. Or you can increase the amount of life cover you have taken out if you want the sum insured to be bigger.

Who pays for a funeral if the deceased has no money?

If the person who has died has no family and no money, then the local authority is responsible for burying them.

Generally speaking, the next of kin is responsible for funeral costs and for arranging a funeral. If a family cannot afford a funeral then a charity may be able to help. This is where a funeral plan can help with costs as some of the expenses will already be covered by the lump sum payout.

*The life insurance comparison service is provided by ActiveQuote Ltd who are authorised and regulated by the Financial Conduct Authority (501109). Registered Office; Global Reach, Dunleavy Drive, Cardiff, CF11 0SN. By using this system you are also agreeing to our Terms and Conditions and Privacy Policy Monthly price based on non-smoking 25-year-old with £100,000 cover for ten years, postcode CF11 0SN. Price accurate as of 26/10/16.

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