Policyholders also need to make sure a life insurance policy is written in trust. This means that the sum insured will go straight to the beneficiary rather than fall into the deceased’s estate.
Payment pledge
Complications can arise when policies are not written in trust, as Rachael Griffin, head of trusts and technical solutions at Old Mutual Wealth, explains: “Rather than being able to pay the funeral director with the proceeds of the life insurance, the family would have to wait until probate is granted before they can access the money. This can take months, even years, especially where someone’s circumstances are complicated.”
Some insurers have always taken a more understanding approach to this. For instance, Aviva offers to advance the funeral costs, while Scottish Widows can advance up to £50,000, even where there is no will in place.
However, in 2016 the Protection Distributors Group took steps to make insurers’ approaches more uniform. Through its funeral payment pledge insurers must proactively offer the family up to £5,000 at claim stage so they can meet the costs of the funeral.
Most insurers have subsequently signed up to the pledge, with some offering to advance higher amounts. Royal London announced in April that anyone submitting a life insurance claim through its intermediary arm would be eligible for a payment of up to £10,000 towards the cost of a funeral, where the proceeds of the policy are delayed by probate.
Tougher regulation
Another key difference between the prepaid products and those that incorporate insurance is consumer protection. While the insurance company plans are covered by the Financial Services Compensation Scheme, prepaid options fall under a self-regulatory framework overseen by the Funeral Planning Authority (FPA).
This difference in consumer protection, coupled with incidents of sharp sales tactics in the unregulated part of the market, led the government to launch a consultation into the regulation of prepaid funeral plans at the beginning of June.
The consultation calls for more robust regulation, stating that the current self-regulatory framework is insufficient to ensure the fair treatment of consumers. In particular, it proposes bringing the market under the supervision of the FCA, pointing to the fact that the FPA does not have the power to prevent prepaid funeral plan providers from trading. In addition, while it has a code of practice for members, this is not legally binding.
The consultation closes at the beginning of August, with the government expected to develop a new regulatory framework shortly afterwards. This announcement has been welcomed by the market. Suzanne Grahame, chief executive at funeral plan provider Golden Charter, says it will help to increase security for the individual while also enhancing the reputation of the industry. “The key thing I would like to see is a move to a mandatory regime that everyone is compelled to follow,” she adds.
