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FSCS warns consumers over funeral plan coverage

Funeral-Flowers-Coffin-Life cover-2013Lifeboat 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.”


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There are 9 comments at the moment, we would love to hear your opinion too.

  1. What is the difference between a “designated investment” above and an Unregulated Collective (or otherwise) Investment that turns out to be worthless?

    A wider “No Compensation” stance from the FSCS would help reduce levies substantially and bring back the balance towards Caveat Emptor.

  2. Nicholas Pleasure 31st August 2017 at 9:19 am

    The reality is that most funeral plans do not work as an insurer and it is the undertaker that is actually taking the risk! After commission and costs, the clients money is invested in the funeral plan trust fund and the idea is that it grows. Whether or not it does, the undertaker agrees up front that they will accept the value of that clients pot as full payment for the services agreed in the plan.

    Therefore, barring fraud or theft of the fund these plans are reasonably secure.

    • The undertaker is taking the risk that the costs for its services increase by more than the growth in the trust fund.

      Which is a very limited risk given that funeral plans are very specific on what they cover, and when the time comes the relatives can usually be squeezed for extras that the funeral plan didn’t cover.

      Either way the undertaker is on the hook for the difference between a percentage and another percentage. (Growth rate of trust fund and inflation of wholesale funeral costs.)

      The punter by contrast is on the hook for the *entire* 100% capital being lost if the funeral plan provider goes bust.

      The plans are as reasonably secure as Farepak was.

      It is very definitely the punter who is taking the risk.

  3. ‘…..not categorised as a ‘designated investment’ under FSCS’s compensation rules’.

    It’s a shame that some UCIS investing in Ukrainian Car Parking Spaces can’t be excluded. I’m sure it all makes sense to someone and was a really good idea when thought up, but for the life of me I can’t understand any of this.

    • Its the structure of the product that makes it a designated investment, not the individual named investment itself. A UCIS is merely a collective investment with an underlying asset; the quality of that asset is not part of the definition. CFD’s, Spread bets and rolling forex contracts are also all designated investments.

      If you don’t understand ‘designated investments’ I would be concerned about your knowledge of the very things on which you provide advice.

  4. And the average person taking out a funeral plan will visit the FCA website – not.

  5. @Matt Amber A

    Thank you so much for explaining what a ‘Designated Investment’ is. Gosh, I’m sure you, along with the rest of the readership, spend quite a bit of your/their time recommending on the suitability, or otherwise, of rolling spot forex contracts and other contracts for differences (please don’t respond with we don’t have those permissions).

    It may shock you, Matt, but I may have also deduced what a UCIS is too, and strangely enough before your extremely helpful guidance on the subject. I thought I should know what its about, for my clients sake, of course and because I pay so much for it every year in my levies.

    My point, though clearly hard for you to see or attempt to understand, or so it would seem, was that Funeral Plans are specifically excluded but UCIS isn’t. If you check the definition of Designated Investment on the FCA Handbook (I’m assuming you are familiar) it states;

    (1) A security or a contractually-based investment (other than a funeral plan contract and a right to or interest in a funeral plan contract), that is, any of the following investments, specified in Part 111 of the Regulated Activities Order (Specified Investments):

    then it lists a – l (with sub divisions)which includes those wonderful, if slightly obscure examples you kindly provided. Thank you for enlightening us all.

    But again, for the avoidance of doubt, the FCA have specifically excluded ‘funeral plan contracts’. They have pulled them out as an ‘exception’ and bothered to name them as such. Otherwise they could have been captured by one or more of the listed definitions.

    So I might suggest, and I’m certainly not claiming to be at your august or remarkable level, they could have added something like ‘….(other than any Unregulated Collective Investment Scheme)…. Wow. That’s radical.

    Funny too that the FCA’s own consumer webpage on UCIS says ‘…because we do not regulate them (UCIS) you may not have access to the Financial Ombudsman Service or Financial Services Compensation Scheme (FSCS) if things go wrong.

    So then it falls on the Regulated advising entity. So whether it was a designated investment or not matters not a jot if the advice or recommendation was given by a regulated adviser, as its the ‘advice’ that is in question.


    1. I assume that the clients of an authorised adviser (IFA or otherwise) who provided non FSCS protected Funeral Plan advice and then subsequently went to the wall, would still have protection from the FSCS, because its the ‘advice’ not the product and

    2. Please don’t be concerned about my knowledge, Matt. I and my clients seem to muddle through somehow. Probably luck I grant you.

  6. Questions:-

    1. Has any FPA-regulated funeral plan provider ever gone bust?

    2. Has any FPA-regulated funeral plan provider ever been even at risk of going bust?

    3. If so, which one/s?

    4. Given the explicit FPA requirement that all monies allocated to meeting the cost of the specified funeral package must be ring-fenced from the finances of the plan provider, has any plan ever failed or been at risk of failing to meet its designated objectives?

    5. If the answer to Qu.4 is No, is not the likelihood of any plan holder ever needing to call on the FSCS virtually non-existent? If so, this seems to be a bit of a pointless article.

  7. Much of the above is factually incorrect. In the UK, the Funeral Fund is separate from the Funeral Planning Company and either held by an insurer or in an Independent Trust. These are audited annually and triennially by an actuary. Maybe some tiny undertakers don’t understand the rules. All the national companies I have reviewed have sensible arrangements in place. Except one, but their funds are still safe an separate – it’s just that they won’t be used for funerals if the host goes under – they will be returned less expenses!!!! Advice available.

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