Don’t be lured in by poor-value over-50s schemes – there are better ways to cover your funeral expenses.
As the price of funerals soars – the average cost is now around £4,078, according to insurer SunLife – more people are worrying about how they (or their loved ones, rather) will foot the bill. And wherever there is a worry, there’s an insurance company looking to cash in. As a result, 380,000 of us buy an “over-50s plan” every year, lured in by promises that, in return for small monthly premiums, your funeral will be taken care of.
The idea of over-50s plans is that your relatives use the lump sum paid out after your death to cover the costs of your funeral. But there are two key problems with these products. Firstly, the amount paid out isn’t keeping up with costs. In an example quoted in The Sunday Times, a 50-year-old takes out a plan from Post Office Money and, in return for £15 a month, can expect a £3,493 pay-out. With the average cost of a funeral at just over £4,000, that means there is already a £500 shortfall, even if the person dies tomorrow. And given that the pay-out is fixed, the shortfall will grow every year as funeral costs continue to rise.
The second problem is that most over-50s policies don’t have a cut-off point at which you can stop paying premiums. This means if you take out a £15-a-month policy at 50 for a £3,500 pay-out and you live to 80, you’ll have paid in almost £2,000 over the odds.
If you make the wise choice and avoid an over-50s plan, you have two main alternatives. If you have plenty of money in the bank, you could set some of this aside in a “funeral account”. Just make sure it is a joint account with someone you trust, so they can access the money immediately to pay for the costs. If you keep it solely in your name, the money will be frozen until your estate is settled. Banks can release cash to the executors for funeral expenses if there are sufficient funds, but it can be a slow process, and in the meantime your relatives may have to pay themselves.
The second option is to take out a pre-pay funeral plan, which allows you to plan and pay for your funeral now, and pay at today’s prices. Given that funeral costs have increased by more than £2,000 over the past decade, this could save you a great deal of money.
The other benefit is that you get to be in control of your funeral, which can also save you money. Many grief-stricken relatives have a tendency to opt for expensive coffins and other fancy options in an effort to show their love. Organise it yourself and you can save money on the things you don’t care about. Just be aware that many plans are split into two parts.
The bit that goes to the funeral director covers all their costs, while a second part covers third-party costs such as burial fees and doctors’ charges. Most plans guarantee the first part – the costs they can control – but only include an allowance towards other costs. Also, note that pre-pay funeral plans aren’t covered by the Financial Services Compensation Scheme.
Pocket money… are you overpaying for your overdraft?
• If you hold an “unsuitable” current account you could be paying as much as £150 a month in avoidable fees, according to Anna Mikhailova in The Sunday Times. This is because banks and building societies are still charging exorbitant overdraft fees.
Last year the Competition and Markets Authority forced banks to apply a maximum monthly cap on fees for unarranged overdrafts. But the caps vary widely, “which can leave unwary customers severely out of pocket”. For example, the Bank of Ireland charges as much as £150 a month in fees, while Clydesdale and Yorkshire Banks charge up to £100 a month. If you do occasionally use an unauthorised overdraft, then First Direct, M&S Bank, Post Office, Metro Bank and Tesco bank all use a simple interest rate rather than a daily or monthly fee. This can often work out cheaper.
• “More people than ever think property produces the best returns of any asset,” says Sam Brodbeck in The Sunday Telegraph. A recent survey found that 49% of us still think that property gives the best returns of any asset class, well in advance of shares, for example. But “this flies in the face of legislative changes and investment returns”. Rental yields on buy-to-lets have steadily fallen over the past two years, while stockmarket yields continue to rise. Landlords can expect an average yield of around 4.3%, according to estate agent Your Move. This has fallen from 5.1% at the end of 2015. In contrast, the FTSE 100 now yields 4.4%.
• If you find paying for a meal out a bit of a chore – catching the waiter’s eye, waiting for the bill to be brought and then more waiting for the card machine or your change – then you’re not alone. Barclaycard reckons over a third of diners find waiting for the bill the most frustrating part of eating out. Now, however, it thinks it has come up with a solution. Its Dine & Dash smartphone app lets you tap your phone on a reader at the beginning of a meal, then, when it comes to settling up, you can simply leave. The app registers that you have left, and settles up on your behalf.