Do You Get Money Back If a Funeral Plan Costs Less in the UK?

Detailed Explanation

This page covers the UK rules. For how the question works in general, and in other countries, see do you get money back if a prepaid funeral costs less.

In the UK, "funeral plan" has a specific meaning. It's a contract, paid in a lump sum or instalments, under which a provider agrees to arrange a defined funeral when the person dies. Since 29 July 2022, anyone selling or providing funeral plans has needed to be authorised by the Financial Conduct Authority, and the FCA's Funeral Plan Conduct of Business sourcebook (FPCOB) sets the rules. A plan bought from an unauthorised firm leaves the customer without access to the Financial Ombudsman Service or the Financial Services Compensation Scheme, so the FCA's Firm Checker is the first thing to check if there's any doubt about a plan.

A plan buys a funeral, not a balance

FCA rules say the point of a funeral plan is certainty: an appropriate funeral services provider will provide the services in the contract at no additional cost to the customer or the person's estate. Within 30 days of the sale, the provider has to put a legally enforceable arrangement in place with a funeral director, usually one within a reasonable distance of the person's home.

That's the reason a cheaper-than-expected funeral doesn't normally produce a refund. The plan holder paid for a set of services, and the provider takes on the risk that those services cost more by the time they're needed. If they turn out to cost less, that difference is part of the same bargain.

Where the money goes while it waits

The FCA requires every plan to be backed in one of two ways (FPCOB 3.1.6R):

• Whole-of-life insurance: the provider buys a policy on the person's life from an authorised insurer, large enough to pay for the agreed funeral.
• A trust: enough of the customer's payments to provide the funeral is placed in a trust, most of whose trustees must be independent of the provider.

Neither arrangement creates a personal pot for the family. For trust-based plans, FPCOB 3.2.12R allows the provider to withdraw surplus from the trust only if the trust's solvency is above 110% on a best-estimate basis and an actuary who is a fellow of the Institute and Faculty of Actuaries has approved it. Growth on the trust is there to protect every plan holder's funeral, and any genuine surplus goes back to the provider under those conditions, not to individual estates.

Third-party cost allowances: the most common source of a difference

A funeral involves costs the funeral director doesn't control: cremation or burial fees, a doctor's fee, the minister's or celebrant's fee. Plans handle these in different ways. Some cover them in full; many include a set allowance, often described as a contribution. Where there's an allowance, the actual cost can come in above or below it. If it's above, the family may be asked to pay the difference; if it's below, whether the unused part is refunded depends on the plan's terms.

FCA rules require the provider to give the full contract terms, a funeral plan summary, and the plan's significant exclusions and limitations before the sale (FPCOB 9.2). So the answer for a particular plan should be in the documents. If it isn't clear, the provider named on the plan (not the funeral director) is the one to ask.

Over-50s life insurance is a different product

Over-50s and other whole-of-life insurance policies are often marketed for funeral costs, but they aren't funeral plans. They pay a cash sum on death, which may be more or less than the funeral costs. If it's more, the rest stays with the estate or the named beneficiaries. If it's less, the estate or family pays the difference. Families sometimes confuse the two, so check which one the paperwork describes.

Things to Consider

• Find out what the plan covers before booking extras. Anything outside the plan, such as flowers, a wake or a headstone, is billed separately. See how do you use a prepaid funeral plan after someone dies for the steps once the time comes.
• Look for the words "allowance" or "contribution" in the plan summary. They show where the cost can differ from what the plan pays.
• Changing the funeral isn't the same as cancelling. If the family wants something different from the planned funeral, ask the provider whether any part can be credited or swapped before the funeral goes ahead.
• Older plans may be on different terms. Plans sold before 29 July 2022 continue, but the FCA's trust and insurance rules were written for new plans, and older plans may sit on earlier trust arrangements, so the documents matter even more.
• Money returned belongs to the estate. Any refund from a plan or allowance goes to the estate and is dealt with by the executor or administrator, not whoever arranged the funeral.

Common Mistakes

• Expecting a refund because the funeral was simpler than planned. Unless the plan's terms offer a credit, a plan pays for the agreed funeral whatever it costs the provider.
• Assuming the investment growth is the family's. Trust surpluses stay in the trust or return to the provider under strict FCA conditions; they aren't paid to estates.
• Mixing up a funeral plan and an over-50s policy. One buys a funeral; the other pays cash. The rules on leftover money are completely different.
• Not checking the provider is FCA-authorised. Without authorisation, there's no ombudsman or compensation scheme to fall back on if something goes wrong.