This is the one financial product you should never buy

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I’ve never been a fan of funeral plans. The fact they are now regulated by the City watchdog, the Financial Conduct Authority (FCA), has not changed my mind.

Like many insurance policies, funeral plans give you peace of mind – until you claim. Around 200,000 people who had bought a funeral plan in the belief it would give them a trouble free send off when they die, woke up last weekend to find that the firm that had taken thousands of pounds off them has been banned from the business. Those customers will lose all or most of their money and at best be passed on to another provider who may or may not give them the funeral they bought.

On July 29 the FCA began to regulate funeral plans and no unregulated firm can sell them. It has banned cold-calling – 30pc of those with a plan claimed they had felt pressured into buying it, many through cold calls. It has also outlawed commission to agents who find customers, which averaged £550 a time. The FCA said that “consumers pay commission through the price of their plan” but firms are not being forced to reduce prices.

When the regulatory process began there were 67 firms in the funeral plan industry. Only 26 of these are now authorised. Ten have been rejected and some of those have gone bust. Another 13 cannot sell plans, but are being given until October 31 to wind down, and 18 have found an authorised firm to take over their customers. 

If you have a plan then check out the status of your provider at fca.org.uk and search “funeral plan”. The FCA has deleted the list of firms that have been authorised and refers you to the user (un)friendly Financial Services Register.

The 18 firms that have transferred customers are not listed anywhere.

Intervention was needed after both the Competition and Markets Authority (CMA) and the FCA discovered the parlous state of the funeral industry. The CMA warned in 2020 that funeral directors were exploiting customers at one of the most vulnerable and stressful times in their lives.

Its “sunlight remedies”, as it called them, included banning funeral firms from paying hospices and care homes to recommend them to grieving relatives. It also ordered them to provide pricing information in a clear and standard way so customers could compare one with another. It claimed that could save customers £1,000 or more. Those rules began in September last year.

But the real worry was the £4bn market in funeral plans. Around 200,000 a year were sold to customers who paid either a lump sum or monthly instalments to buy a funeral in advance and, the marketing claimed, free their relatives of both the cost and difficult decisions at a time when they were grieving. The money paid should have been placed in a trust to protect it even if the firm went bust. But in many cases that was not happening. 

One firm, Safe Hands with around 45,000 customers, went into administration in March. A regulated provider, Dignity, has said it will provide funerals until October to any Safe Hands customer who dies. But after that it may ask customers for more money to convert their existing plan into a Dignity plan. Another provider, Unique Funeral Plans, is also in administration, leaving customers with no hope of either a funeral or a refund.

Most of the 1.8 million funeral plans that are live are with the 26 newly authorised firms. But the FCA admits one in eight plans are not, leaving 200,000 customers with anything but peace of mind.

I have never liked funeral plans and not just because some were sold by dodgy firms and none came with a guarantee that you would get what you thought you had paid for – the FCA found customers often did not. My objections are much more philosophical.

First, if you will leave at least a few thousand pounds when you die your heirs can pay the cost out of that. Your funeral is the first call on your estate. Banks can give early access to cash for funeral costs and any decent funeral director will wait for payment until the estate is settled. People who will not leave enough to pay for their funeral should not be putting aside money that could be used to help them while they are still alive.

Second, a funeral is not for the dead, it is for the living. They should have the right to decide what send off they want and how much of their inheritance they spend on it. Regulated or not, it’s not worth buying a funeral plan.

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