Funeral plans

What's the problem?

Prepaid funeral plans can be a great way to lock in the cost of your funeral at today's prices. They can also remove some of the financial and logistical burden from your family when you die.

But unlike similar insurance products, funeral plans aren't regulated. That means there's no one holding companies to account if they're not clear about what is and isn't covered by their plans. And with a product like funeral plans - where the customer won't be around to check delivery against their expectations - it's particularly important that people know what they're getting.

While good funeral plans cover most of the costs associated with a funeral, no plans cover everything. Burial plots, headstones, flowers and wakes are never included in a funeral plan - although some do allow you to put extra money aside for these. Many funeral plan providers focus too much on what is covered and gloss over what isn't.

In our 2017 report, "Is the prepaid funeral planning market working well for consumers?", almost half of those who had bought a contribution funeral plan believed that there would be nothing left for their family to pay when they died. In reality, their plans would be unlikely to cover everything.

Furthermore, around three-quarters of funeral plan holders wrongly believed that the market is regulated by the Financial Conduct Authority.

The lack of regulation is not just a concern in terms of poor sales practices. There's also a lack of certainty around the safety of customer money. If a funeral plan provider was to go bust, there's no safety net like the Financial Services Compensation Scheme in place.

Our research revealed that some companies in the sector are paying large commissions for sales of their funeral plans, as well as taking significant administration fees up front. This raises concerns that there may not be enough money kept aside to fund funerals when planholders die. Without intervention, we fear that we may see another Farepak-style scandal.

What needs to happen?

The funeral plan sector is currently only subject to voluntary regulation. The largest oversight body is the Funeral Planning Association. Although it has worked hard to keep on top of the problems in what is a rapidly growing sector it is, by its own admission, struggling.

We believe greater resources are needed to police the conduct of providers and third party sellers in this industry - and much greater transparency is required to give customers certainty over the safety of their money.

We would like to see all companies publishing audited accounts for the trusts and life funds in which their customer money is kept. That should include details of any assumptions that have been made. Companies should also be forced to disclose how much they take in fees and charges, as well as be upfront about any commissions they are paying.

We believe that the simplest and quickest way to get proper protection for consumers in this sector would be to bring it within the scope of the Financial Conduct Authority. This would also give consumers access to the Financial Ombudsman Service for resolution of complaints. Plan providers would also be brought under the wing of the Financial Services Compensation Scheme.

As part of this shift, we would also want to see plan providers be forced to write living wills - laying out clear plans for a smooth transition in the event that they were to go bust. This transparency should ensure that the safety net of the FSCS never needs to be called upon, and should mean that membership fees for providers are not too high.

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