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Guide

Life insurance and funeral planning explained

Our guide to funeral planning explains how you life insurance to cover can help to cover funeral expenses. 

The average cost of a basic funeral in the UK is now £4,141, which is a 4.7% increase from last year. If someone chooses to be buried, the average cost goes up to about £5,077, while a cremation costs around £3,795. These prices can change depending on where you live in the UK and how big or small the funeral is.1

 

Additionally, the total cost of dying, which includes everything from the funeral to paying for things like estate fees and wakes, has reached a record high of £9,658—up 5% from before1. Many people buy life insurance to help cover these costs so that their loved ones won’t have to worry about paying for it themselves.

 

In this guide, we will look at different types of life insurance you can use to pay for a funeral and discuss other ways to cover these expenses if you don’t have insurance.

Does life insurance cover funeral costs?

Yes, life insurance payouts can help the people you leave behind pay for funeral costs. When someone who has life insurance passes away, a lump sum of money is given to their beneficiaries. Part of this money can be used to cover the funeral expenses.

 

For example, you could suggest that your beneficiaries set aside 10% of the payout for funeral costs and related fees. They can then use this money to pay for those expenses. It's important to know that beneficiaries have the freedom to decide how to use the life insurance payout. They are not required by law to spend it on the funeral.

 

If you have specific ideas about how you want your funeral to be, it’s a good idea to talk to your beneficiary about your wishes. This way, they will know how you’d like the money to be used when the time comes.

 

Learn more: How life insurance payouts work?

Options to cover your funeral expenses

If you want reassurance that your life insurance policy will cover your funeral expenses, then you have a couple of options.

Funeral life insurance add-ons

Some insurers offer funeral life insurance add-ons to their policies. Life insurance with funeral cover sets a certain amount of money aside to pay for the funeral. This means you’ll be sure that the funeral will be covered with the funds.

Stand-alone funeral plan

Funeral cover can be purchased as a stand-alone product. Bear in mind that if you only have a funeral plan, your loved ones will only be left with money towards the funeral expenses, and nothing else.

Policies covering funeral expenses

When it comes to funeral planning and life insurance, there are two policies that can help your loved ones cover the funeral expenses:

Term life insurance

Term life insurance provides coverage for a set number of years. If you passed away during that time, your loved ones would receive a payout. This could be used to cover funeral costs.
If you survive until the end of the term then the plan won’t cover funeral costs – therefore may be unsuitable.

 

Whole life insurance

This kind of cover lasts your whole life. The premiums tend to cost more than term insurance as the payout is larger and guaranteed. This is so long as you meet the terms of your insurer. A larger payout means more money available to cover the funeral. 

Paying for a funeral without life insurance

There are a few different ways you can plan and pay for a funeral without life insurance. The most straightforward is to set aside money for the funeral each month. Remember that when you die your bank accounts will be frozen. Your family won’t be able to access the funds until your will has been executed. This might be after the date of the funeral itself.

But, with some well-thought-out funeral planning, you can ensure that your loved ones have access to the money. The simplest option is to set up a joint bank account together so they can then use the money you saved.

If you have the money to pay for the funeral but it’s tied up in savings, shares or assets, such as property, that won’t be available until after your passing. Then, you may have to rely on your loved ones to pay for the funeral and you can reimburse them in your will.

If you don’t have the money to cover your funeral expenses, then your family could cover the cost of the funeral. This is an option if your loved ones are financially independent and either earn enough money to pay for it upfront or have money in savings.

Or, you could also take out a pre-paid funeral plan. Essentially you are buying a funeral in advance. You can either pay monthly or a one-off upfront fee. In general, funeral cost go up over time, but with a pre-paid plan you’ll have locked in today’s price. This could save you and your loved ones money in the long term.

If your family are on qualifying benefits, they might be able to apply for a Funeral Expenses Payment. This is a lump sum that can cover various costs relating to the funeral. It currently pays up to £1,000 if you passed away on or after 8 April 2020. (HMRC). It’s important to bear in mind that this may not be enough to cover all your funeral expenses.

Last of all, there are options from the state. For people who don’t have family or savings, your local authority provides a public health funeral. This will be a basic ceremony with a cremation.

There are ways you can pay for a funeral without life insurance. But, if you have specific ideas in mind then a life insurance policy can make sure these are carried out. What’s more, remember that funeral costs can rise. So the amount you’ve saved for today might not be enough in 10, 20 or 30 years time. As a result, using life insurance to cover funeral expenses, or at least part of them, can help make up for the shortfall.

Do I need to cover my own funeral costs?

You don’t have to cover your funeral costs. But it is worth thinking about if you can afford it. The death of a loved one is a very challenging time. Knowing that there is money available to pay for the funeral will be a relief for your loved ones. It can, for instance, mean they don’t go into debt to pay for it.

Funeral planning can be a difficult conversation to have but it’s one worth having. By letting them know your funeral wishes, they’ll have a clearer idea of what to do when the time comes.

 

If you can’t afford it, then there are other ways the funeral can be paid for. As noted above, your local authority may also help pay for funerals. Eligible applicants may also be able to receive a lump sum towards the costs from the government.

What is the difference between life insurance and funeral plans?

Life insurance and funeral plans both pay out a lump sum when you die. The difference is about how the payout can be used. If you have life insurance, your loved ones can use the money on anything they want (including a funeral). With a funeral plan, the payout must be spent on a burial or cremation. In either case, having cover lessens the financial burden.


Life insurance normally pays out more than funeral cover so your premiums may be higher. They are also regulated by the Financial Conduct Authority (FCA) giving you extra protection.  A Funeral plan is often bought directly from undertakers. This type of cover isn’t FCA regulated. This means if there’s a dispute, it might be harder to get it resolved.

Is life insurance better than a funeral plan?

If you have significant debts, financially dependent family members or a mortgage, then life insurance is likely to be the preferable option for you. Life insurance payouts tend to be larger and can be used to cover more. This means the beneficiary can spend the money as they see fit. If they’re financially stable, they could use the money to pay for a larger funeral. But if they need the money for other things, then they have options.

 

But, if you’ve paid off your mortgage and have no financial dependants, funeral plan might be the better option. If the only expense your family will incur after your death is the cost of the funeral, then this type of policy may be the way to go. It means your loved ones don’t have to worry about paying for the interment or cremation. 

Vitality life insurance

Want to know more about life insurance or thinking about taking out a policy? Here are some of the benefits of taking out life insurance with Vitality:

  • A brand you can trust - In 2023, we paid out 99.7% of life insurance claims.*
  • Get a lower monthly premium upfront when you add Optimiser to your plan. Keep your premiums low when you stay active.
  • Access to Vitality partner discounts and rewards.
  • Get free no-obligation advice. Our advisers offer expert advice to help you make the right decisions.
Get your life insurance quote in minutes

Last updated: 13 December 2024

*Vitality Claims and Benefits Report, 2024

Source: 1 Cost of Dying Report 2024

Funeral planning FAQs

Are there any tax implications associated with using life insurance to pay for a funeral?

Life insurance payouts are not typically subject to income tax. But, if the policy has not been written into trust, then you could be liable to pay some Inheritance Tax. This is true regardless of what the money is used for. You should consult a solicitor for guidance about writing a life insurance policy into trust.

Can I write my funeral plans into my will?

You can write your plans for your funeral into your will. This can help remind your loved ones of your intentions. But, funeral plans written into a will are not currently legally binding. This means that the beneficiary can override these wishes if they want to.

How can I make sure the beneficiaries use my life insurance policy to cover funeral expenses?

Early communication with your loved ones about your funeral plans can help ensure the payout is spent the way you intended. If you are particularly worried about the beneficiary not using the life insurance policy to cover funeral expenses, then you could purchase a funeral cover add-on to your existing life insurance policy. But, you will need to check this is a product your current insurer provides. Or, you can purchase a stand-alone funeral cover.

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