It’s the last thing you want to think about when a loved one has died, but British consumers are increasingly feeling the pinch when dealing with the aftermath of a relative’s death.
A new study from British Seniors Insurance Agency has revealed that consumers are increasingly resorting to payday loans and credit cards to pay for funeral costs.
According to the study, family and friends in the UK collectively spent £4.8bn on funerals for their loved ones over the last five years.And to fund these funerals, 2.7m people resorted to credit cards, personal loans and payday loans, spending £1.6bn.
Of those 2.7m people, 1.2m took out payday loans to pay for the funeral of a loved one, borrowing an average of £576m, with £485m spent on credit cards.
According to the study, people who are funding the cost of funerals for family and friends are mainly dipping into their own pockets (16%), spending £936m collectively over the last five years.
27% of people are paying for funerals out of their own pocket or their savings, with personal savings taking a hit as people withdrew £870m because life cover, funeral cover or other provisions weren’t in place.
People aged 18-34 are the most affected, the study found, with almost half (44%) using or taking out a credit card to pay for a loved one’s funeral, and a quarter (27%) using payday loans.
The age group borrowed £464m from payday loan companies in the last five years and spent £338m on credit cards to cover the cost of funerals.
They are also the generation who are most responsible for managing a loved one’s affairs, with a 25% taking on the role of organising things like possession, clearance and sale of the home, executing a will and tasks like sorting post and closing bank and phone accounts.
Londoners topped the table of consumers who took some form of credit or finance to pay for a funeral, with 39% of those in the capital taking out a payday loan (borrowing £256m) and 40% taking out a new credit card, (£183m in total).
The study highlighted a gulf between people’s expectations of the cost of funerals and the reality.
In the research UK adults estimated on average that the cost of a funeral is £3,733.
But those who had had to pay for a funeral had to pay significantly more, with a total average spend of £4,136.
And the problem looks set to get worse as, according to British Seniors, the cost of funerals is set to spiral.
The insurance agency predicted that funeral costs are set to go up by 22% by 2026 – from £4,136 to £5,066 – as they rise in line with inflation.
Loved ones could be left badly out of pocket in the event of a relative’s death, as only 21% of UK adults have life or funeral cover in place to cover the costs of their funeral, the agency said.
Its study found that 40% of UK adults assumed the cost would come out of the estate or would be otherwise covered, while 23% thought they’d have to pay out of their own pocket or savings.
Just 2% anticipated having to pay by credit card or payday loan while 17% didn’t know how the cost would be covered.
Londoners were more unprepared for the costs of their funeral to be covered, whilst those outside of the south are the most prepared. People in the North East (27%) were most likely to have life insurance in place followed by 26% of Scots.
Dave Sutherland, managing director of Neilson Financial Services, said: “The emotional impact of losing a loved one is devastating and it is only exacerbated when a family member or friend has to deal with not only managing the affairs but also having to pay the funeral costs.
“Our research reveals that many, particularly the younger generation, have to resort to forms of credit resulting in their grief being made worse at what is already a difficult time.’’
“At British Seniors Insurance Agency, our focus is on our customers and doing the right thing by them.
“Our customers tell us the last thing they want when they die is for their loved ones to be left in debt paying off their funeral.
“We want to encourage people to make sure that they have some form of life insurance or cover in place so as to provide peace of mind that when the inevitable happens they’ve got it covered for their loved ones.’’