Over 50s life insurance or a funeral plan?

If you are over 50 and want to make sure your funeral does not leave a bill for your family, there are two very different products to consider. Over 50s life insurance is a whole-of-life policy with guaranteed acceptance: no medical questions, a fixed monthly premium and a lump sum paid when you die. A funeral plan is a contract with a provider that locks in funeral services at today's prices, and since 2022 funeral plan providers have been regulated by the Financial Conduct Authority.

The two work in completely different ways. Over 50s life insurance pays cash to your estate or your chosen beneficiary, who can spend it on whatever they need. A funeral plan pays for a funeral directly. Over 50s cover is available to UK residents aged 50 to 80, with premiums from around £7 a month, but the payout is fixed and inflation erodes its value over time¹. Which? says over 50s life insurance often pays out less than you have paid in premiums and does not recommend this kind of product¹.

A funeral plan, by contrast, is a regulated contract. FCA rules say a provider must not seek or obtain further payments from the customer or the estate to secure the funeral services set out in the plan³. That protection does not apply to over 50s life insurance, which is simply a life policy with a fixed payout.

The two products side by side

Over 50s life insurance: guaranteed acceptance from age 50

Over 50s life insurance is a type of whole-of-life cover that pays a lump sum when you die, provided you have not missed any premiums¹. It is designed for people aged between 50 and 80, and you must be a UK resident to apply². The key feature is guaranteed acceptance: the insurer will not ask any medical or health questions, and any pre-existing conditions will not affect whether you are accepted or what you pay⁴. Premiums are based on your age, whether you smoke and how much cover you choose¹.

This makes it different from ordinary life insurance, where premiums are based on your age, health and lifestyle, and where a serious condition can mean higher premiums or a declined application¹³. Over 50s plans are not medically underwritten at all¹.

The trade-off is the payout. Because there are no health questions, the lump sum is usually much smaller than an equivalent term or whole-of-life policy would provide. Aviva caps total monthly premiums across all its over 50s policies at £100¹⁴. Shepherds Friendly allows premiums from £10 up to £50 a month¹¹. Legal & General's minimum premium is £7 a month⁵.

The payout is fixed when you take out the policy and does not increase. Shepherds Friendly warns that over time, although the amount paid out when you die is fixed, this amount is likely to reduce in value because of inflation¹¹. Which? makes the same point: because the payouts are fixed, the effect of inflation will erode the value of the payout over time¹.

Premiums fixed for life, and what happens if you stop paying

The main attraction of over 50s cover is that the premium is fixed. It will not go up, and the insurer cannot change it once the policy is set up¹⁵. Legal & General, Aviva, TSB and Santander all confirm that premiums are fixed for the life of the policy⁴.

Most policies stop taking premiums at a set point. Legal & General stops premiums at age 90, but cover continues for life⁴. Aviva stops premiums after 30 years or the policy anniversary after your 90th birthday, whichever comes first, and cover continues¹⁴. Shepherds Friendly uses the same rule: premiums stop after 30 years or at age 90, whichever comes first¹¹.

If you stop paying, the consequences are severe. Which? says you must pay the premium until you die, and if you stop paying, your entire policy is cancelled and you get nothing back¹. Legal & General confirms that if you stop paying premiums when due, the plan will be cancelled and you will not get anything back⁴. TSB allows a 30-day window after the first missed premium before cover ends¹⁶. Santander allows 60 days after the last payment was due¹². Shepherds Friendly ends cover after three missed premiums¹¹.

The waiting period: usually 12 to 24 months before full cover

Most over 50s policies have a waiting period, sometimes called a moratorium or deferred period, before full cover applies. This is typically 12 to 24 months⁵. If you die from natural causes during this period, the policy will not pay the full lump sum.

The exact terms vary by provider:

• Post Office: a 12-month waiting period for non-accidental death, such as dying from a medical condition⁶. In the first 12 months, if death is from a non-accidental cause including cancer, Post Office pays 1.5 times the premiums paid up to that point, with the full benefit payable after 12 months⁷.
• Legal & General: full cover after one year, and if a claim is made within the first year, any premiums paid are refunded¹⁶.
• Shepherds Friendly: life cover does not start until after the second anniversary of the plan start date¹¹.

Accidental death is usually covered from the start. Santander pays the lump sum if you die in the first year due to an accident¹². Legal & General and TSB also pay full cover for accidental death within the first year⁴.

The waiting period matters because it means the policy does not provide immediate protection. If you are in poor health when you take out the policy, the first year or two is when your family is most exposed.

A fixed payout may not cover a funeral

One of the most important things to understand about over 50s life insurance is that it is not a funeral plan and does not guarantee to cover funeral costs. Legal & General states plainly that Over 50s Fixed Life Insurance is not designed to meet the full costs of a funeral, and does not guarantee to do so⁵. Scottish Friendly, National Friendly and SunLife all carry the same warning on their over 50s products¹⁸.

The payout is a cash sum that can be put towards a funeral, but it may not be enough. Which? found that typical premiums of £10 to £30 a month produce a starting payout of just £2,780 for lower premiums¹. That is unlikely to cover the full cost of a funeral, and the figure is fixed at the outset.

By contrast, a funeral plan is designed to cover the specific services set out in the contract. FCA rules require that upon notification of death, the funeral plan provider must ensure the services required for the funeral plan contract are delivered to a satisfactory quality and standard by the appointed funeral services provider, or appoint another at no additional cost, and in a timely manner³.

If you are relying on over 50s life insurance to pay for a funeral, the money may fall short. The policy pays a lump sum to your estate or beneficiary, who can use it towards funeral costs, but there is no guarantee it will be enough¹⁹.

Over 50s cover or a funeral plan: which fits your situation

The two products suit different circumstances. Over 50s life insurance pays a cash lump sum that your family can use for any purpose: funeral costs, debts, or a gift. A funeral plan pays for a funeral directly, locking in services at today's prices.

Over 50s cover may suit you if:

• You want to leave money to family as well as cover funeral costs
• You have health conditions that would make ordinary life insurance expensive or unavailable
• You want a simple product with no medical questions
• You are aged up to 80²

A funeral plan may suit you if:

• Your main concern is ensuring your funeral is paid for and arranged in advance
• You want the protection of FCA regulation
• You want to fix the cost of specific funeral services

FCA rules prevent a provider from seeking further payments from your estate for the services in the plan³.

Some over 50s policies offer a funeral benefit option. Post Office offers this at no extra cost, allowing the policy proceeds to be paid directly to a specified funeral provider⁸. OneFamily includes Funeral Funding by default²². If you remove the funeral benefit option, the cash sum is paid to your legal beneficiary and you lose any discount towards funeral costs⁸.

Tax and inheritance: how the payout is treated

The lump sum from an over 50s policy is usually paid free of income tax and capital gains tax¹⁰. However, unless the policy is written in trust, it forms part of your estate and could be subject to inheritance tax⁹.

Writing a life insurance policy in trust means it is paid to trustees rather than to your estate, and there should be no inheritance tax liability on it¹⁷. This is a common step for anyone whose estate might exceed the inheritance tax threshold.

Which? notes that life insurance does not incur tax, but would be added to the value of your estate so may then be subject to inheritance tax²³. If your estate is valued at more than £325,000, inheritance tax will be charged on the insurance payout²⁴.

A funeral plan works differently. The money you pay is held by the provider to deliver the funeral services, not paid out as a lump sum, so it does not form part of your estate in the same way.

What protects you, and where protection stops

Funeral plans are regulated by the Financial Conduct Authority. FCA rules say a firm must not unreasonably reject a request to redeem a funeral plan, must handle redemption promptly and fairly, and must not seek or obtain further payments from the customer or the estate to secure the funeral services set out in the contract³. If a funeral plan provider fails, the Financial Services Compensation Scheme may be able to help²⁵.

Over 50s life insurance is not covered by the same rules. It is a life insurance policy, and if the insurer fails, the Financial Services Compensation Scheme may provide protection, but the rules are different from those for funeral plans.

If you have a complaint about either product, you can take it to the Financial Ombudsman Service. For free, impartial help with money decisions, including funeral costs, MoneyHelper and debt advice charities can help.