This is a hypothetical concept. The funeral fund could be a fixed account with/without interest.
Example: Rahim starts saving $50 monthly in Funeral Fund or bank account. He died after 1 year when there was $600 for his funeral. But, funeral costs $7000. Funeral fund is not able to pay funeral even. Where was the problem? There are other expenses too. He can withdraw his money in 1st year if he does not die.
Solution: Rahim goes to ABC company and offer them to take his money and invest according to shariah law. Rahim does not want to take risk of gain or loss. He does not want interest because it is forbidden in Islam. He only wants to make sure that Karim will take care of Rahim’s funeral cost of $10,000. They made a contract where ABC promises to pay $10,000 funeral claim if Rahim dies anytime between 20 years time frame. Rahim promises to keep paying premium ($50) for next 20 years. If he does not die, and still breaths after 20 years, he can withdraw $10,000. But, he cannot withdraw it before 20 years. They named the contract Funeral Insurance.
Now we know the problem of Funeral Fund. And The solution which is Funeral insurance. The limitation of funeral insurance is that it is not available for unhealthy people. The limitation is new problem. “Application not approved” is a newer problem. or approved conditionally. How we will solve it? The solution is participating in “funeral insurance fund”.
So, what is funeral insurance fund?