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What’s the Difference Between Life Insurance and a Funeral Plan?

Money Savings Advice What’s the difference between Life insurance and a Funeral Plan

On the face of it, Life insurance and Funeral plans do seem quite similar, and there is always confusion around what the benefits and differences are between the two.

We have cut through all the technical jargon to provide you with a detailed but easy to understand synopsis of both and make clear what the differences are.

Both life insurance plans and, funeral plan payout when you die. Funeral plans cover the cost of a funeral where a life insurance plan payout can be used to covers additional financial liabilities such as mortgage and school fees.

Looking for other information on funeral plans? This guide has info on ‘Funeral plan – vs – life insurance – what is the difference?’ We have also writen extensively about:

We update all our guides regularly. If you are researching funeral plans and we haven’t got an exact guide that helps you, keep coming back as we update daily.


Continue reading to get the full nitty-gritty details of the differences between both plans.

Number of UK Adults With Protection

But first, it’s worth noting that there are over 17.9 people in the UK that have some form of ‘protection’ insurance with the most popular being Life Insurance.

Protection TypeNumber of UK adults with protection
Life Insurance14,400,000
Critical Illness Cover5,000,000
Personal Accident Insurance3,100,000
Income Protection Insurance1,900,000
Funeral Plan1,600,000
Mortgage Payment Protection1,400,000
Unemployment / Redundancy Insurance1,100,000
Payment Protection Insurance300,000

Protection insurances have increased dramatically over the last ten years, and this trend looks set to continue with more and more uncertainty being felt in the workplace.

Some positives, if you are looking for some form of protection, as the numbers above show, you are certainly not alone.


About 1.3 million people in the UK have a funeral plan.  It’s a rapidly growing market, with more than 200,000 sold last year. They are typically bought by older people to cover the cost of their funeral so their family doesn’t have to pick up the bill. But this is a controversial sector

Len Burgess is a professional financial writer who over the last five years has written hundreds of articles for all financial sectors. Len founded Money Savings Advice with the aim of helping consumers navigate their way around the financial world by providing easy to understand financial information and matching consumers with the best financial advisor based on their personal information.

Category: Funeral Small

Less than a third of people in the UK (30%) have life insurance, which equates to 8.1 million households – significantly less than the country’s 11.1 million mortgaged properties. Life insurance, which pays out a lump sum on death, can mean that if a family tragedy occurs the finances are taken care of.

Len Burgess is a professional financial writer who over the last five years has written hundreds of articles for all financial sectors. Len founded Money Savings Advice with the aim of helping consumers navigate their way around the financial world by providing easy to understand financial information and matching consumers with the best financial advisor based on their personal information.


But What Is Life Insurance?

Life Insurance is an insurance that you pay into monthly that will pay out a lump sum should you pass away or be diagnosed with an illness that means you have only 12 months to live.

Life Insurance is a financial protection blanket that you can throw around your family should the unthinkable happen.

There can be nothing worse than losing a loved one and being left in financial difficulty. Who is going to pay the mortgage, the debts etc. – this is where a Life Insurance policy can be a vital policy to many families.

When choosing a Life Insurance policy people are asked, what they would like to cover?

When applying for cover, you can decide how much you would like to leave your family, how long you want the protection for, policy length and a few additional qualifying questions.

You will then get a quote. 

The quote is based on you paying a monthly fee anywhere between £10-50 per month, depending on the type of cover and the value you want your family to receive.

So, if you have covered yourself for £200k, and then you die, your family will receive this cash lump sum which they can use to help them financially moving forward.

Monthly values change based on the level of cover required.  The above are just basic suggestions.



Now, What Is a Funeral Plan?

We have written extensively about funeral plans here on ‘Money Savings Advice’ about how funeral plan costs are worked out and the plans available.

Quick recap!  

Funeral plans are plans you pay into monthly, very similar to Life Insurance and payout when you die.

The value of the payout is much smaller, and the plan only covers the specific funeral costs. Read more about the type of funeral plans available.

They are essentially the significant differences between each.

So, if you are looking for a type of cover to payout when you die that only covers the funeral costs, then a pre-paid funeral plan is for you.

However, if you are looking for more comprehensive protection that pays out a much more significant sum, then Life Insurance is the one.

A note to the wise – if you have a Life Insurance policy, the payout can be used to cover the costs of a funeral.

Will the Cost of My Prepaid Funeral Increase Over Time?

One of the main benefits of a prepaid funeral plan is the fact that the cost of your funeral is frozen at the day you take out the policy. So, for example, as the cost of funerals continues to grow year by year, this will have no impact on your funeral costs. The details and the cost have already been set and won’t change.

Can I Personalise My Prepaid Funeral Plan?

Yes. You can add any details you like when taking out your prepaid funeral plan to make it as lavish or simple as you like. Upon your death, there is no input from other family members, your wishes will be respected, and the payout from your prepaid funeral plan will be sent directly to the chosen funeral director.

Does My Life Insurance Cover My Funeral Costs?

No. Term life insurance will cover you for a certain period of time with no payment if you die after the term is over. Whole of life insurance is very different, you will pay premiums each month, and as long as the policy is in place, your beneficiary will receive a payment upon your death. It is important to know that both payments are free of tax. Whether your beneficiary uses the payments to cover the cost of your funeral is down to them.

Money Savings Advice Tip

A funeral plan is great if you want to make sure your family are not left out of pocket when you pass. We recommend getting a whole market quote in order to understand the process and get a plan that financially works for you.

Can I Take Out a Life Insurance Policy to Cover My Funeral Costs?

Yes. Many people do take out life insurance to cover the cost of the funeral and other issues upon their death. The difference between life insurance and a prepaid funeral plan is that funds from your life insurance policy are not allocated to your funeral costs. The cost of your funeral will be based upon the cost at the time of your death as opposed to frozen at the date you take out your prepaid funeral policy.

How Are Funeral Costs Covered?

Upon your death, the funds to cover the cost of your prepaid funeral will be sent to the chosen funeral director. There is no payment via third parties, no way in which the funds can be used for a different purpose, which ensures they are used only to cover the cost of your funeral. As your premiums were based upon the cost of your funeral at the time, there should be no additional payments and no surplus.

Should I Take Advice About Life Insurance and a Funeral Plan?

Yes. Many people take out life insurance and a prepaid funeral plan so that they can provide in some way for loved ones upon their death. It also ensures that the cost of their funeral is already paid and reduces what can be significant financial stress on those left behind. Life insurance is also a very popular means of protecting your home upon death.

If for example, you had an outstanding mortgage of £50,000, then you could take out a term life insurance policy covering the period of your mortgage for £50,000. So, upon your death, a £50,000 payment will be made to your mortgage company wiping out your mortgage debt and leaving your loved ones with a debt-free property.

Our Conclusion

As with everything financial, you should always conduct your research into the precise terms of each policy with the provider. We have aimed to provide an overview of the differences between both protection policies.

How Can Money Savings Advice Help You With a Funeral Plan?

Here at Money Savings Advice, we have partnered with some of the UK’s leading Funeral Plan & Life Insurance brokers. They have already helped thousands of people get the best Funeral Plan and Life Insurance cover and they can do the same for you.

Choosing an independent adviser means they won’t recommend a scheme unless they are sure it is in your best interests. Their advice is also regulated by the FCA, which gives you an additional layer of protection.

If you would like to speak to one of these brokers who can provide you with a ‘whole market quote’ then click on the below and answer the very simple questions.

Len Burgess is a professional financial writer who over the last five years has written hundreds of articles for all financial sectors. Len founded Money Savings Advice with the aim of helping consumers navigate their way around the financial world by providing easy to understand financial information and matching consumers with the best financial advisor based on their personal information.

Len Burgess is a professional financial writer who over the last five years has written hundreds of articles for all financial sectors. Len founded Money Savings Advice with the aim of helping consumers navigate their way around the financial world by providing easy to understand financial information and matching consumers with the best financial advisor based on their personal information.

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