A ‘Life Cover Protection Gap’ is emerging, as 42% of funeral plans and life policies don’t offer as much cover as individuals need.
More than two-fifths of those with a policy in place to cover funeral costs are only covered up to the value of £3,000 according to the research from OneFamily, with a quarter (24%) only covered up to £2,000. Yet the latest figures show a cremation with a simple service runs to £3,290 on average.
And more expensive funeral arrangements may cause further issues. A fifth (20%) of those with less than £4,000 in funeral cover said that they want a burial – which typically costs £4,383 or more. Furthermore, many of those with less than £4,000 in funeral cover expect more costly elements like catering (19%) and limousines (11%) to be covered too.
Meanwhile, 68% remain without any life cover or insurance at all. Those who don’t have a funeral plan or life cover in place most commonly say they will instead ask family members to take the value from their estate (33%) or have set aside a savings pot (29%) to deal with the cost of their funeral.
However, almost one in 10 of those who don’t have cover in place (9%) say they don’t know how they’ll cover funeral costs at all. Similarly, 33% of those using savings to cover funeral costs say they don’t know how much they have put aside to manage costs. Seven percent intend to take out life cover at a later date.
Paul Bridgwater, Head of Insurance at OneFamily, comments on the findings: “Having funeral costs covered can give peace of mind, but it’s not always the most pleasant thing for people to have to think about. As a result, it’s likely that many people don’t have the level of cover or savings they need for the type of funeral they want, but are also reluctant to look into their arrangements in more depth. That’s why it’s key for advisers to ask the right questions and ensure that the policy and payment levels they advise are really going to provide what the customer needs.”
The research comes as the sector prepares for FCA regulation to come into place from July 2022, which aims to drive up standards for pre-paid funeral funding plans. The goal of the regulation is to ensure that providers and intermediaries meet consumer needs and provide the right outcomes, while offering fair value and ability to deliver on plans.
Paul Bridgwater continues: “The new regulation coming into force is likely to mean some funeral funding providers will be unable to operate or choose not to apply for authorisation. There is likely to be a fair amount of uncertainty among advisers initially when it comes to recommending pre-paid funeral funding plans. As a result, we expect to see more advisers looking to life cover to meet this consumer need and Over 50’s guaranteed acceptance plans can be a neat and easy solution.”
Mike Allison, Director of Protection at Paradigm said: “The funeral planning market raised a number of consumer concerns, leading to a change in both their regulation and distribution.
“Intermediaries now have a clear path to offer clients a viable alternative in order to part or fully cover their funeral costs using trusted, regulated organisations such as OneFamily with regulated products.
“Whole of life plans have always been there to form the basis of future planning for clients to cover a variety of events. They are simple to understand and undoubtedly lead to positive customer outcomes, something which forms part of the proposed new rules embedded within The Consumer Duty. The scope to support a huge number of clients is clearly evident in the statistics above.
“The additional underwriting benefits for clients in an Over 50s plan makes them a valuable part of a toolkit for protection, wealth and mortgage advisers - especially the latter, given the increase in focus on later life lending and equity release.”
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