Lifeboat fund the Financial Services Compensation Scheme has warned consumers that they may not be able to claim money back from the fund if their funeral plan provider goes bust.
In a post on its website yesterday, the FSCS said that there were only “limited circumstances” in which it could pay out, and that it would normally not be able to protect plans paid either monthly or with a lump sum.
The FSCS said: “Whilst funeral plan providers can be regulated by the FCA the vast majority choose to use exemptions available to them which means they are not. Even if a regulated funeral plan provider were to sell a funeral plan to an individual, this would not be covered by the FSCS because these products are not categorised as a ‘designated investment’ under FSCS’s compensation rules.”
The FSCS noted there may be cases where funeral plan providers use insurance companies and investment trusts and these go bust, where money could be returned to the plan provider or trustees.
However, the provider or trustees would then decide themselves on where the money would be distributed.
The FSCS said: “Having paid compensation, FSCS is not responsible for the decisions that funeral plan providers or investment fund trustees may make. It is unlikely that FSCS would be able to pay compensation directly to individuals.”
Fairer Finance managing director James Daley says: “We’re delighted to see FSCS bringing some clarity to where its coverage lies and doesn’t lie around funeral plans.
“The fact remains that no funeral plan customers have recourse to FSCS if their plan provider was to become insolvent. Yet most people think funeral plans are subject to the same regulation and consumer protection as general insurance product.”