My last blog talked about taking out a 50+ life policy which provided a cash sum on death with which descendants could pay for a funeral, but there is also a simpler savings plan (rather than whole life) for funeral costs. This is offered, for example, by Co-op Funeralcare, the largest funeral business in the UK, another big player, Dignity and many other undertakers.
With the Co-op funeral plan you pay into a policy which guarantees to cover funeral expenses regardless of what happens to inflation. The plan is not an insurance product and offers clients varying degrees of funeral splendour – gold, silver, bronze and/or cover to finance a tombstone later. To be up with the times funeral directors are keen to provide eco, pop playing and any type of funeral, described as ‘ bespoke’.
Dignity’s funeral plan offers a one off payment of nearly £3,000 which will secure a crematorium funeral, a coffin and a hearse. Paying by instalments over 120 months costs a lot more.
A caveat here is, like the drawback of committing to a life policy, all scheduled payments and savings of any sort (at any time of life), can be restricting to the individual, especially if they find they are elderly and short of funds, then payments can be a downright burden. So think twice about taking on a whole life or parting with quite a lot of money for a prepaid funeral plan; ask do you really need this, and even if you feel you do, you don’t have to become signed up in your 50s.
On this theme of trying to part with less cash rather than more, I met a friend the other day and as we walked the wobbly bridge to go and inhale the open spaces of Tate Modern, she said rather plaintively that her independent financial adviser had said she should save £200 a month towards paying off her inheritance tax bill. You are not talking about Princess Anne here who has plenty of income for saving if she wishes and if she does pay inheritance tax there will no doubt be plenty of it. What an extraordinary suggestion to my friend who has a very modest lifestyle and is unlikely to pay much inheritance tax anyway.
Why does she have to worry about inheritance tax? She and her ex-husband have two young adult children who should have the funds to pay this bill, given that they are set to inherit two houses on their parents’ demise. The Independent Financial Advisers Association had no comment to make but one IFA, Mel Kenny of IFAs Radcliffe &Newlands based in the City said:
“Paying a monthly sum into a whole life policy is a viable strategy for certain people, but bear in mind you have to be healthy to do this otherwise the premiums become too expensive.” He agreed that the ploy wouldn’t suit lots of people.
Classic financial advice is always trying to prize out of the punter hard earned and uninflated money now in readiness for jam tomorrow, which in this case, they will not be around to participate in.
When approached by your IFA on this or any similar theme, remember that with a good accountant you can mitigate your inheritance tax bill hugely without saving into a life policy, and even if you don’t manage this, whatever happens it will not be your problem. If you do owe the Inland Revenue huge sums on death, your children will have to give the family’s Damian Hirst work of art to Tate Modern in lieu.