What Happens If Your Funeral Plan Provider Goes Bust? (UK)

If an FCA-authorised UK funeral plan provider fails, your plan is protected in three ways. Your money is held in a trust or an insurance policy, the provider must have arrangements for another firm to take over its plans, and the Financial Services Compensation Scheme (FSCS) can arrange a replacement plan or pay compensation up to £85,000 per person per firm. The FSCS covers providers that failed on or after 29 July 2022, including plans bought before that date.

Who regulates funeral plans, and since when?

The Financial Conduct Authority (FCA) began regulating pre-paid funeral plans on 29 July 2022. By then 26 providers had been authorised. Before that, plans were only covered by voluntary self-regulation through the Funeral Planning Authority, and the FCA said 216,000 plans were sold in 2021 alone.

The FCA's rules require customers' money to be backed by an adequate trust or insurance arrangement. They also ban commission payments and require plans to offer fair value. The FCA notes that several firms did not apply for authorisation and others withdrew their applications, so not every firm that sold plans before 2022 is still trading.

Where is your money held?

Your payment does not sit in the provider's everyday bank account. A funeral plan is backed in one of two ways:

• A trust. Money you pay is held on trust for the purpose of providing your funeral. The FCA requires a provider to arrange a solvency assessment of its trust by an independent actuary, and the report has to be published. The rules generally stop a provider taking surplus money out of a trust unless it is above 110% solvent.
• An insurance policy. The provider buys insurance that pays out for your funeral when you die.

Both routes are meant to keep your funeral money separate from the company's day-to-day finances. Whichever your plan uses, it is worth asking the provider to tell you in writing, because the paperwork may only say "trust" or "insurance" in small print.

What happens if the provider fails?

Two things are designed to happen, in this order.

1. The plans move to another firm. FCA rules require providers to put arrangements in place so there is a reasonable likelihood that, if the firm fails, another authorised firm can take over and carry out the plans. The transfer cannot be restricted to a single named firm. Providers must also keep a resolution manual and a record of customer payments.
2. The FSCS steps in if a transfer is not possible. The FSCS says it will normally arrange "a like-for-like replacement plan with the same terms as your original plan", or one as similar as possible. If you prefer, it can pay compensation, calculated from what it would cost to buy the same plan on the market today.

The FSCS says that in most circumstances you will not need to make a claim for the provider's failure itself. If you get a letter from a provider, an insolvency practitioner or the FSCS, keep it with your plan documents and read what it asks you to do.

Which plans are covered?

The FSCS can also cover certain activities by a plan provider or an intermediary (a funeral director, for example), such as advice to take out a plan or the way a plan was set up, provided the activity took place on or after 29 July 2022. Check the FSCS website to see whether you can claim.

How do you check your provider is authorised?

Use the FCA Firm Checker, which is free.

1. Search for the firm by name.
2. Choose "Funeral plan" as the service.
3. Confirm the firm can "enter into a funeral plan contract" and "administer and process claims".
4. If the seller is an appointed representative, check the firm that authorises it instead.

If the firm does not appear at all, the FCA says it has either transferred its plans to an authorised provider or stopped operating. The National Association of Funeral Plan Providers runs a tracing service for plans held by its member firms. Our guide to FCA-regulated funeral plans explains the wider rules.

What protection does not do

Insolvency cover keeps your plan alive. It does not change what the plan contains. A few points are worth checking in your own paperwork:

• Guaranteed or contribution. Some plans guarantee the funeral, including third-party costs. Others pay a fixed sum towards crematorium, burial or minister fees, and your family may be asked to cover a shortfall. Our UK funeral plan guide and plan comparison cover the differences.
• Extras. Flowers, catering, headstones and newspaper notices are usually separate.
• Where you live. Some plans only cover part of the UK. Pure Cremation's terms, for example, apply to deaths in mainland Britain and do not cover repatriation from abroad.
• Your family knowing. A plan only helps if someone knows it exists. Keep the certificate with your will and tell your executor which provider to call.

Can you cancel if you lose confidence?

Yes, within limits. FCA rules give you a full refund if you cancel within 30 days of buying. If the funeral director is appointed later, you get at least 7 days from that appointment to cancel for free, where that ends after the first 30 days. On instalment plans, you receive all your payments back if you cancel or die during the waiting period, which can be up to 24 months.

After those periods the provider may charge a cancellation fee. Fees differ: Pure Cremation, for example, deducts £350 once the free period ends, and pays nothing back if you have paid less than that. Our guide to cancelling a prepaid plan walks through the process.

What to do next

1. Find your plan certificate and check the provider's name and plan number.
2. Search for the provider on the FCA Firm Checker.
3. Read the key features document for what is guaranteed and what your family might have to pay.
4. Tell your next of kin where the paperwork is and who to call.