Financial Angles

We met up with our long time financial adviser, and it was quite a surprise to hear about the changes to the financial system – insurances and savings are now completely separate.

The present climate is pretty awful for savings and investments, and there really is no with-profits type of insurance anymore.

ALL savings have the same tax breaks  -so Individual Savings Accounts (ISAs) are not terribly attractive anymore. Most other types of account have better interest rates!

It was a real eye-opener! What a bizarre world.

It looks like funeral costs will have to be from Term insurance, Whole-Life insurance, or borne at the time from whatever cash is to hand.

The good news is that we’re in a better position that we’d thought (mostly by chance).

Years ago, an incorporated company needed a minimum of two directors. This changed and so my latest business had just me as the sole required director when I started it up.

However, when my daughter was ready for nursery, because my wife was not back at work, and we were not claiming state benefits, a nursery place was impossible!

The only way around this was to employ my wife, and so my children were able to get places at pre-school nurseries.

And that was the way we left it – until the changes in workplace pensions of late meant that she had to become a director to avoid all that.

This is a really good position to be in as it turns out; this is our main income source, so if anything happened to either one of us, the survivor would be able to continue access to the money without having to do anything.

There is no point in opening a joint bank account because our individual accounts are barely used, and are mainly fed from whatever we chose to transfer from the business.

All we have to figure out is what happens to the business should anything happen to us both at the same time.

We do have savings, so we have decided to look at splitting this lump into two – one invested in something ethical but risky (and so higher on our ROI) – maybe something like equity crowdfunding or an angel investment, Crowdcube, or Seedrs type of thing – which may be fun if a wee bit too risky. Then again, it may just be safer yet still better than the high street with  a P2P/ Peer-to-peer social lending set up (the old marketplace lending scenario is getting good press lately eg Zopa is returning a whopping 7% just now), the rest probably ought to be in a bank or building society – a joint account with good access.

The plan is to use the savings account to cover funeral costs, the business account for the day-to-day living costs and bills immediately following a death, and the higher yield investment to take care of the children’s future whatever happens.

A check on Moneysavingexpert shows that the rates are all terribly low, and that current accounts are better than savings accounts! West Bromwich Building Society offers an easy access account at 1.05%, better rates mean locking away the cash.

Anyway… we’re on the case. The limitations and restrictions mean that everyone is in the same boat, and that everything is actually a lot simpler too. So there is that.

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Life Cover Death

OK, so there is a risk of unexpected costs in leaving my body to research, meaning that I need to still consider paying for funerals somehow, and if funeral plans are out of the question, then how can I make sure the costs are covered?

I have savings in various accounts – but I just realised that these accounts get frozen as soon as I die, and becomes part of my estate – so I am now worried that my wife will be unable to access money to cover my funeral costs – or even to continue with the costs of running the house and family.

I suppose I could simply set up a joint account and then whoever doesn’t die gets sole control of the account.

Some kind of investment is required. That much is clear – but how do I arrange this to work upon my death? How do I arrange for the investment to be accessible by my widow or family, and not be frozen into my estate?

Maybe if I did not leave a will, everything would simply transfer to my widow, and vice versa. I don’t know how quick the transfer may be. I’m guessing that the tax man might want to be involved, which might mean there is a financial problem for at least a period – and people will want paid – fees and charges as well as tax. That’s not the best time for complexity – and that is exactly what I am trying to avoid.

I think people exploit the situation to their own advantage. I can fully appreciate how attractive it is to allow someone else to take care of everything – and you just hand over money – whatever it costs.

This could be where Life Assurance comes into play.  If I remember rightly, there are two main types – Term and With-Profits (or Endowment) policies.

The Term insurance is about paying a small premium every month until the term is up – it only pays out on death during the term, whereas life assurance policies can be joint, can be cashed-in, offer bonus pay-outs on death and so on.

This is all from memory of getting mortgages over the years – I remember getting a Capital & Interest Mortgage (constant net rate annuity mortgage), and each monthly payment was made up of repaid capital and calculated interest – and I had to get Term insurance as security for the loan – to cover paying-off whatever capital was outstanding on death so the lender wouldn’t lose out and my debt would not be inherited.

Whenever I had an Endowment Mortgage, I paid only interest each month, and the policy was designed to pay off the whole capital on my death – with “terminal bonuses”. These mortgages got a good name because of this, but then got a bad name because they failed to pay off the capital when the mortgagee did not die before the term!

It looks like I need to talk to a financial adviser. The trouble is deciding on the amount of cover – I still do not know how much a funeral will cost today let alone in years to come!

Paying Up

I have found it difficult to determine how much a funeral costs. There seems to be a lot of choice, but really there are just unknowns.

Maybe the cost of a funeral would not matter as much if there was some policy or scheme with  a lump sum investment or affordable monthly premiums.

When I visited my local funeral director, I was amazed at how expensive funeral plans are.

They often state that 100% of the funeral cost will be taken care of – but that is seldom true (they have exclusions which they term as “Third Party Costs” or “Disbursements”).

These disbursements are considerable – for City of Glasgow (2016), it is £ 875.00 for internment plus £1165.00 for the lair  – that’s £2040.00 EXCLUDED by funeral plans. (see my previous post on this).

I wondered if they are expensive because they are sold by (and perhaps tied to) a particular firm of undertakers. Maybe it would be cheaper to get a funeral plan from the finance company, and pick a funeral director that is approved by them at the time they are needed.

A mate of mine recommended Golden Leaves, but – while they are better geared for expats living abroad (Spain mostly) – they only cover the funeral director’s costs and not the full cost.

The Co-operative is the biggest funeral business in the country, their website homepage states that the cost of the grave is not included. So their plan is all about headstones, embalming, undertakers uplifting and transporting the body and so forth – what they are famed for.

Sun Life sounds like insurance, but it is the same three plans as the Golden Charter ones offered by my local undertakers – a basic, a medium and a fancy. I just checked Golden Charter’s website, and they are now doing four plans – but it’s the same idea nevertheless – basic to comprehensive in stages, and the big costs are excluded.

Age UK differ in that they state that they do cover everything, unlike the other funeral plans. The plans are provided by Dignity – so I checked out their website, and in their exclusions:

Medical certification fees. For deaths where a coroner investigation is required, there are no medical certification fees. Also, changes to legislation in May 2015 mean there will no longer be a charge for a medical certification for any deaths registered in Scotland. Similar legal changes are being considered for the rest of the UK, so we do not include provision for these fees in our Plans. If the funeral takes place outside of Scotland, and a coroner is not involved, then if applicable, the medical certification fees must be paid by the next of kin or personal representative, when arranging the funeral.

Embalming, burial plot, memorial or headstone, flowers, catering/wake.

Having said that, they do cover the cost of cremation.

Funeral plans make a big deal about the fact that they can be cancelled and you can get a refund, after a fee has been taken, but there are other restrictions, such as having to have paid each month and run the plan for a certain period of time to be entitled to a refund, and in some cases to be entitled to receive the pay-out (so if you start the plan and die in the first year or so, they don’t pay out – just refund your premiums or lump sum)!

Another important consideration is the security of the money – according to The Money Advice Service:

The Financial Conduct Authority (FCA) doesn’t regulate funeral plans covered by insurance or trust arrangements. It does however stipulate rules for each method of investment, so sums paid by the customer are safeguarded and available to pay for the funeral when needed.

If you’re paying for your funeral bill upfront, you could consider paying for part of on your credit card. When you pay with your credit card, you benefit from Section 75 of the Consumer Credit Act. This means you can get extra protection if things go wrong with the funeral director.

You could also get this protection if you were to pay at least £100 of the funeral bill upfront, and then pay off the rest of the balance in monthly instalments.

All things considered, funeral plans seem like a really bad deal – they force you to take the funeral director route, to take things you don’t want or need (coffin, cremation etc). You get a “package” that is difficult to customise or personalise.

It might be better to negotiate with a funeral director without the limitations or set funeral plans, paying by other means.

I still do not know what type of funeral for my wife and myself. I still don’t know the costs and how to pay for this – but I think I can rule out Funeral Plans!

Death as a Source of Income for Govt

I looked up a few things on the internet, and was amazed to discover that funerals are political and economic issues here in Scotland:

Citizens Advice Scotland are concerned that some councils have increased their costs in recent years to cover shortfalls in overall budgets or ‘to bridge the gap between their charges and the national average’.

East Dunbartonshire Council (2013) raised cemetery charges by 18 per cent in their
2013/2014 budget to ‘deliver £84,000 of additional income’ which is being used to ‘protect frontline services’.

In response to a local newspaper (Kirkintilloch Herald, 2014) questioning the decision by the Council to raise costs by a further 50 per cent in 2014/2015 to raise an extra £89,000, a Council spokesperson said: “The Council had some very difficult decisions to make while facing increased budgetary pressures. Every effort was made, where possible, to introduce or increase charges for certain services, rather than removing services…”

Edinburgh City Council identified an increase in cemetery charges as part of their five year budget framework which would see an increase of between £13,000 and £26,000 income to cover budgetary pressures. The council said as part of their budget plans (Edinburgh City Council, 2013) that it ‘was operating in an extremely challenging financial climate brought on by central government spending cuts and the Scottish Government’s council tax freeze.’

That’s pretty shocking to me. How can I set aside funds to pay for funerals when councils can up the cost on a whim by 50% in a single year?