Should you opt for an ISA or a whole of life policy? And then there are funeral plans, and to complicate things more, you can take out a funeral plan that is backed by a whole of life policy.
Burial costs have gone up 10% and cremation costs by 7% while funeral director costs rose by an average of 5%. The bottom line is, as far as funeral prices are concerned, the only way is up according to a cost of dying report prepared independently by Mintel, with friends and family having to beg, borrow, or sell their belongings to raise the £117 million spent last year in the UK to finance the funerals of loved ones, where no funds were readily available at the time of need.
If we take a look at the percentages mentioned above, it becomes painfully obvious that an ISA is not going to make the grade. The best I could find was a five year fixed cash ISA at 3.35 AER.
Insurance policies on the other hand are relatively affordable with a monthly payment that can never go up, sometimes referred to as a "fixed monthly payment". For example with a leading insurance provider, a 50 year old male can get cover for £15 a month with a pay out of £5,169.00 if he dies after having held the policy for at least a year and without missing any payments. This amply covers the current average funeral costs of £3, 284 according to cost of dying report, but let's see what happens if the man dies at let's say age 75. For one thing he will have paid £4500 (not bad considering the pay out) but speaking of the pay out, it is still £5,169.00 and not a penny more, despite 25 years of investment.
OK, what about a funeral plan, what makes it any different? Actually there is something that makes a funeral plan very different indeed. The funeral director costs are guaranteed. So no matter how they may rise in future, your family will not be asked for a penny more for the services provided by the funeral director, and a contribution to third party costs such as crematoria and doctors' fees is included. Paying for a funeral plan in one lump sum however is not easy for everyone and even spreading the cost over 12 months is still difficult for most in these financially hard times. This is where the fixed monthly payment option comes in. A funeral plan backed by a whole of life policy giving you the best of both worlds; a funeral plan with the benefits of the guarantees it includes and the affordability of a whole of life policy with monthly payments that will never rise, but in this case, the pay out will!
Don't rush into decisions. As with all investments, take your time, ask questions, ask more than one company/advisor, digest all the information available and make your own informed decision.