What If Plan Provider Goes Bust? Protection and Answers for 2025

One of the most common anxieties I encounter as a death doula is the fear of financial loss. Clients often ask me, "What if my funeral plan provider goes bust?" It is a valid concern, especially given the high-profile collapses of unregulated firms in years past. However, the landscape of funeral planning in the UK underwent a massive transformation in July 2022.

Today, the answer to what if plan provider goes bust is much more reassuring than it was a few years ago. With the Financial Conduct Authority (FCA) now overseeing the market, consumers have access to robust funeral plan protection and a clear prepaid plan guarantee. In this guide, we will break down exactly how your money is protected, what happens during an insolvency event, and what the 2025–2026 market looks like for plan holders.

The New Era of Funeral Plan Regulation

Before July 2022, the funeral plan industry was largely self-regulated. This lack of oversight led to instances where consumer funds were mismanaged. Since then, the FCA has made it a criminal offense to sell funeral plans without official authorization.

This regulatory shift means that every authorized provider must meet strict conduct standards. They are required to ensure that even if they face financial difficulty, there are "backstop" arrangements in place to protect the consumer.

How Your Money is Actually Held

When you pay for a funeral plan, the money doesn't simply sit in the provider’s business checking account to be used for daily expenses. FCA rules dictate two primary methods for securing your funds:

1. Independent Trusts: Your money is placed into a trust managed by professional, independent trustees. These funds are legally separate from the funeral plan company.
2. Whole-of-Life Insurance: The provider uses your payment to take out a life insurance policy on your behalf. When you pass away, the insurance payout covers the funeral costs.

What Happens if a Provider Fails?

If a regulated provider becomes insolvent in 2025 or 2026, a specific sequence of events is triggered to ensure you aren't left without a plan or your money.

1. The Search for a Successor

The FCA requires providers to have arrangements in place so that another firm can take over their "book" of plans. In many cases, a healthy provider will buy the defunct firm’s contracts. Your plan would simply transfer to the new company, usually with the same terms and conditions.

2. FSCS Intervention

If no other firm can take over the plans, the Financial Services Compensation Scheme (FSCS) steps in. The FSCS provides a prepaid plan guarantee for eligible customers. They will either:

• Arrange for a new provider to take over your plan.
• Pay you compensation (up to £85,000) so you can purchase a new plan elsewhere.

3. The Role of Insolvency Practitioners

In modern insolvency cases, the FSCS works directly with the administrators. You typically do not need to file a complex claim yourself; the FSCS uses the failed firm’s records to contact you directly.

Real-World Examples: Lessons from the Past

To understand why these protections are so vital, we have to look at the firms that failed before the FCA took over.

Example 1: The Safe Hands Collapse

Safe Hands Plans collapsed in 2022 just before the new regulations began. Because they were not authorized by the FCA at the time of failure, their customers were not eligible for FSCS protection. As of mid-2025, victims are only seeing returns of approximately 8.5p to 12.5p for every £1 they lost. This highlights why checking for FCA authorization is the single most important step in how to choose a pre-paid plan.

Example 2: The One Life Fallout

Similar to Safe Hands, One Life customers faced significant uncertainty. These cases served as the catalyst for the strict 2022 rules. Today’s providers must prove their financial "solvency" annually to the FCA to prevent a repeat of these disasters.

Example 3: Modern Success Stories

While we haven't seen a major regulated provider fail in 2024, the "transfer" model has been tested with smaller mergers. In these cases, plan holders received letters explaining that a larger, more stable firm was now managing their funds, with no loss of benefit to the consumer.

Understanding the "Pots" vs. "Guarantees"

Not all funeral plan protections are created equal. When researching pre-paid funeral plans explained, you will encounter two main structures.

Guaranteed Plans

These plans "lock in" the funeral director's services at today’s prices. Even if the cost of a funeral doubles in the next twenty years, the provider is contractually obligated to deliver the service. These are generally considered the safest option for beating inflation.

Contribution Plans

These plans provide a set "pot" of money (e.g., £3,000) that grows slightly over time or earns interest. The danger here is that if funeral costs rise faster than the "pot," your family will have to pay the difference.

Market Trends for 2025 and 2026

The prepaid funeral market has stabilized significantly since the 2022 "shakeout." Here is what you need to know about the current environment:

• Direct Cremation Dominance: Over 60% of new plans are for direct cremation. This "no-frills" option is the most affordable way to secure a plan and is less susceptible to the regional "postcode lottery" of burial plot prices.
• The Postcode Lottery: 2026 data shows that a burial in the North East may cost around £5,092, while the same service in London hits £9,050. Many consumers are now choosing "National" providers who can offer fixed pricing across different regions.
• Regulatory Simplification: By the end of 2026, the FCA is expected to reduce some administrative burdens for "simple" plans (like direct cremation), which could lead to lower premiums for consumers.

Common Mistakes to Avoid

1. Assuming All Plans are Protected: FSCS protection generally only applies to firms authorized on or after July 29, 2022. If you hold a very old plan from a firm that is no longer active or didn't seek authorization, your protection may be limited.
2. Confusing Plans with Life Insurance: Over 50s life insurance pays a cash lump sum. It does not guarantee the funeral service. If the insurance company goes bust, different rules apply, and the payout may not cover a funeral's future cost.
3. Forgetting Third-Party Costs: Many people believe "full cost" covers everything. In reality, many plans exclude "disbursements" like flowers, headstones, or newspaper notices. Check your paperwork for what is actually "guaranteed."
4. Not Informing Next of Kin: A funeral plan is only useful if someone knows it exists. I have seen families pay thousands for a funeral, only to find a prepaid plan in a drawer three months later.

Conclusion

The fear of "what if plan provider goes bust" is a relic of an unregulated past. In 2025 and 2026, the UK funeral plan market is one of the most strictly overseen financial sectors. By choosing an FCA-authorized provider, you are ensuring that your investment is ring-fenced in a trust or insurance policy and backed by the £85,000 FSCS guarantee.

Planning ahead is a gift to your family, but only if that plan is secure. Take the time to verify your provider, understand the difference between a "pot" and a "guarantee," and keep your loved ones informed. For more details on whether these plans are the right fit for your budget, read our article on Are Pre-Paid Plans Worth It.