Make your funeral a less costly undertaking

Last week, I asked a Scottish farmer's wife if seeing spring lambs gambolling about the fields ever made her come over a tad vegetarian as it does me. She said not. In fact, when she and her husband killed lambs for personal consumption, she usually wielded the gun.

I must have looked surprised because she followed that up with the comment that she hadn't fired a shot since her own babies had been born. Ah, I said, so it does feel a little different once you have your own children? "Er, no," she said. "It's just that the bang's too loud for the bairns." That told me.

Still, however miserable death might be for Scotland's lambs, at least it comes quickly and without much warning or worry. Not so for the rest of us. Not only do we waste much of our lives in existential angst, but we fret about the style and cost of our death long before the moment actually comes.

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How else to explain the immense popularity of the funeral plans sold by the likes of the Co-op? With these, you can "help your loved ones tomorrow" by "being prepared today" i.e. you can prepay for your funeral. You can go for a "set cremation plan" (from £2,560 to £3,095), a "set burial plan" (same price) or, if you are feeling flash, a tailor-made funeral plan with a fleet of limos and floral tributes galore.

The Co-op, along with all the other providers of these plans, goes to great lengths to explain why this is a great idea. You can, it says, relieve your family of "worry and uncertainty" by taking out a plan; you can reduce the "financial burden" on them; you can "protect yourself from rising funeral costs in the future", you can "choose to personalise your funeral" and most compelling of all you can protect yourself from inflation by locking in today's price.

I'm not entirely convinced about any of this. You can personalise your funeral and remove any uncertainty simply by telling someone what you want before you die and, given the cost of prepaying, I'm not sure that by doing so you are reducing the financial burden on anyone except for the plan provider's balance sheets.

Let's say you go for the Gold Set Funeral Plan. Upfront, it will cost you £3,095. But pay over three years and it will cost you £3,559.25. That's £464.25 more. So you're paying an effective interest rate of around 5%. Go for the more basic Bronze, and the figures are £2,560 upfront or £2,944 over three years, and the effective interest rate is much the same.

Now, 5% might not sound like a particularly high rate, but you have to ask why there is any charge attached at all. After all, they aren't lending you money and no money has been spent: the plan providers are just holding your cash until you die.

Surely they should be paying you interest? Or at least charging you much less than the going rate for a funeral to allow for the fact that they'll be making interest on your cash until you die?

Note, too, that if you die before you've finished paying the money, the Co-op will return your money to your family. But not with interest. No. Instead it'll be deducting a £250 "cancellation charge".

You might also wonder about the prices, here. £3,000 seems a lot for a basic deal particularly as Axa Sun Life Direct has calculated that the average funeral currently comes in at £2,549, and a basic funeral at a mere £1,124. Go for a nice woodland burial, instead, and your relatives could end up with change from £1,000.

All in all, I suspect that most of us would be better off putting our £2,000-£3,000 into a good savings account and leaving it there. For example, put the cost of a Gold Plan into an instant access account at 3.15% and, in three years' time, instead of having paid out an extra £464 on top of the £3,095, you'll have made an extra £300. Not enough to pay for a Michael Jackson-style send-off, but not to be sniffed at either.

Otherwise, you might consider popping your funeral money into shares in Dignity (LSE:DTY),a company that buys and operates high street funeral parlours.

If you are going to be ripped off by the limo and floral tribute industry after your death, you might as well have a go at sharing its spoils while you are alive. No one ever negotiates with a funeral director who is going to ask for a cut-price casket for granny? And not many people try to compete with them either. In most towns, the funeral director has at least a duopoly, something that makes deflation less of a worry for Dignity than for your average retailer.

There is risk in Dignity's debt levels, but it isn't particularly expensive for a business that barely notices recession: the shares trade on on a price/earnings ratio of around 15 times.

So, if you think you might live out the bear market, the odds are you'll find the shares a better bet than the average funeral plan.

This article was first published in the Financial Times