Losing a loved one is profoundly difficult, but the financial concerns of arranging a funeral can cause additional anxiety. From choosing the right funeral director to making a claim on the deceased's life insurance policy, there are many things to take into consideration. Here Times Money provides a guide to funeral arrangements and all the costs.

Arranging a funeral

Funerals are expensive. In 2006 the average cost of a burial service, excluding the headstone, was £3,307, while a crematorium was £1,954. But costs can easily spiral beyond this. For example, you will pay more if you want to be buried or cremated in a borough in which you do not live at the time of your death.

Some people may have already planned and paid for their own funerals (see box, facing page), but if you suddenly find yourself having to arrange a loved one's send-off, it can be daunting. At some point you will need to work out how you are going to pay for it all.

The bank account of the person who has died will be frozen, unless it is a joint account. In some cases, the bank may agree to release funds to pay for funeral costs, but it is not obliged to do so until probate is granted. If the bank does not release funds, you may have to pay for the funeral and recover the money from the estate of the deceased later.

There are several things that you need to check about the deceased when paying for a funeral. First, was he or she a member of an occupational pension scheme? Some schemes pay a lump sum to help with funeral costs, and sometimes pay pension benefits to widows or other dependents. There may also be money payable from the deceased's trade union or professional body, so contact such organisations directly to find out.

The deceased may have taken out a life insurance policy that provides a lump-sum payment when someone dies. Payment is usually made after grant of probate, but the insurance company may pay out a limited sum on evidence of death.

Most people make funeral arrangements through a funeral director. However, it is important to check that the company you choose is a member of one of two trade associations, the National Association of Funeral Directors (NAFD) or the National Society of Allied & Independent Funeral Directors (SAIF).

Costs can vary significantly among different funeral directors, so always obtain more than one quote. They should provide detailed price lists for you to take away and consider, so do not feel pressurised into agreeing to anything immediately. Also remember to ask for written details of all disbursement fees, which may include a doctor's certificate, newspaper announcements, flowers and crematorium or burial fees.

Some people prefer to make their own arrangements because this can be more personal and less expensive than going through a funeral director. Mike Jarvis, of the Natural Death Centre, the charity, says: “This would involve collecting and storing the body and making all the funeral arrangements. While it may not be suitable for everyone, some people take great comfort in arranging a funeral themselves.”

The Natural Death Centre helpline can advise on arranging a funeral yourself. Call 0871 2882098.

Green options

By 2010 it is expected that 10 per cent of all funerals will be environmentally friendly or “green”. Some cemeteries have a specific section of land for green burials, while the Natural Death Centre has established 228 natural burial grounds in the UK over the past 15 years. These sites include woodland, meadows and farming land. Mr Jarvis explains: “These burial grounds are used for unembalmed bodies to be buried in a biodegradable coffin. Instead of a headstone, there will be trees, plants or wildlife. Not only are traditional headstones expensive, they are also bad for the environment, particularly as the materials used are often shipped in from abroad. At a green burial, graves are simply marked with a biodegradable wooden cross.”

Natural burial grounds are usually cheaper than sites at municipal cemeteries, although biodegradable coffins can be more expensive.

If you are considering a green funeral, you should investigate whether the land has a deed, or trust, in place to protect it from commercial exploitation in future. John Weir, of SAIF, says: “Check with your local authority that there is permission to use the land as a burial site. Once permission is granted, it is unlikely that the remains will be disturbed.”

Financial help

If you are on a low income and need help to pay for a funeral, you may be eligible for a social fund funeral payment of up to £700, plus reasonable disbursement fees. The payment is means tested and you must be receiving certain benefits to qualify. You may have to repay some, or all, of the money from the estate of the person who died, but if there is no money from the estate, you will not be held liable. To make a claim, contact Jobcentre Plus on 0800 0556688.

If your spouse or civil partner has died in the past 12 months and you are under 65, you may be eligible for a bereavement payment. This is a one-off tax-free lump sum of £2,000. There are various other benefits to which you may be entitled after a bereavement. These include community care grants, crisis loans and the war widow's or widower's pension. For information on how to claim, go to www.direct.gov.uk.

How about the DIY approach?

Currently only 2 per cent of funerals are preplanned and prepaid. You may think it a little morbid to consider your own funeral, but remember that planning and paying in advance will save your loved ones a lot of hassle after your death.

John Weir, of the National Society of Allied & Independent Funeral Directors (SAIF), says: “If you bought your own funeral from a specialist funeral director today, you would pay for the director's fees and the disbursement costs. The former is locked in, meaning that you or your estate would never have to pay extra for the funeral director's fees, even if you lived for another 30 years.

“However, the funeral director has no control over disbursement costs, so these may have increased by the time of your death. In this case, the difference would have to be recovered from the estate. For example, if you paid £500 to cover disbursement costs and when you died the costs had increased to £700, your estate or family would have to pay the extra £200.”

A number of funeral planners offer prepaid funerals, including Golden Charter, Dignity, Help the Aged, Age Concern and Co-operative Funeralcare. Mr Weir says to check that the provider is registered with the Funeral Planning Authority, a regulatory body that ensures that companies meet requirements laid down by the Financial Services Authority. This includes ring-fencing the money paid for funerals to ensure that it is protected and used correctly.

In case you change your mind about your funeral arrangements, check the director's refund policy - some will return your money.

Remember that you need to appoint someone in your will, or somewhere else in writing, to oversee the funeral arrangements and liaise with the director.

Mr Weir adds: “Even if you do not want to take out a prepaid funeral, I would encourage everyone to think about what sort of funeral they want and to discuss this with relatives.

“I see so many families agonising over whether or not to bury or cremate the deceased, whether to donate organs and what sort of service to have. If the deceased had left specific instructions, it would have saved his or her loved ones a lot of worry.”

Case Study: Peaceful and simple burial

Alexandra Boyd recently arranged the funeral of her father and opted for a “green” service at a woodland burial site.

The actress, who lives in Suffolk, says: “My father left no instructions for his funeral, so it was daunting to arrange the service. He was an atheist, so I knew that he would not have wanted it in a church. I contacted the Natural Death Centre helpline and they spoke to me for 45 minutes, explaining how to organise a green funeral.”

Ms Boyd opted for Tony Brown's Funeral Service, a specialist “green” funeral parlour that owns a woodland burial site in Suffolk. “I bought an ‘ecopod' coffin, which is basically made from recycled paper,” she says. “It was quite expensive at £700, although there were cheaper wicker alternatives available for only £275.

“The body was not embalmed because this is a toxic process. The grave was dug between two trees in the woodland and the service was conducted at the graveside.

“The total cost came to £2,200, which I will eventually recover from my father's savings accounts. The burial was peaceful and simple - and the woodland is really beautiful.”