5 ways to pay for your funeral (and avoid being rorted)
There are many ways to plan for your funeral costs, but which should you choose?
The Australian Competition and Consumer Commission (ACCC) has warned funeral services about making "false, misleading or deceptive claims" about the cost of funeral services.
Its statement – issued on the ACCC's website – came as the government is set to cover around $4 million in funeral claim expenses to support Indigenous policyholders affected by the collapse of Youpla Group.
With funeral plans back in the firing line, we take a look at the main ways to cover your funeral expenses.
A prepaid funeral plan
A prepaid funeral planA prepaid plan lets you pay for your funeral in advance.
You pick the service you want, sign a contract with a funeral director and pay them a lump sum or a deposit and regular instalments.
This option grows in popularity. Finder research has found that more than half of Australians (53%) intend to pay for their funeral while they're still alive.
Pros
- The funeral you select is locked in at today's prices. If costs rise over time, you still get the same service.
- In most states, your money is protected by a registered funeral fund.
- Payments are exempt from the pension income test.
Pros
- The funeral you select is locked in at today's prices. If costs rise over time, you still get the same service.
- In most states, your money is protected by a registered funeral fund.
- Payments are exempt from the pension income test.
What to be aware of with prepaid funeral plans
What to be aware of with prepaid funeral plansGovernment site Moneysmart urges caution with prepaid plans. It says "make sure you shop around" and offers 3 pieces of guidance for consumers:
- Get a breakdown of the costs so you know what you're paying for.
- Ask whether you can transfer your plan to another funeral director if you move to another state.
- Check if you can get a refund from your prepaid funeral if you change your mind.
Moneysmart says a funeral bond may be a better option for those in the ACT and the Northern Territory.
That's because there are fewer protections in place for prepaid plans in these territories.
Funeral insurance
Funeral insuranceWith funeral insurance, you typically pay regular monthly premiums to an insurer. After you die, your beneficiary gets a lump sum to pay for your funeral.
This payout is between $3,000 and $15,000 depending on the cover you sign up to.
Pros
- Fast payouts. Most policies say a payment can be issued "within 24 hours" or "1 business day" after death.
- You can be covered for up to $15,000. This should meet the wishes of most.
- Many providers offer guaranteed acceptance as long as you meet age requirements.
Pros
- Fast payouts. Most policies say a payment can be issued "within 24 hours" or "1 business day" after death.
- You can be covered for up to $15,000. This should meet the wishes of most.
- Many providers offer guaranteed acceptance as long as you meet age requirements.
What to watch out for with funeral insurance
A longstanding boon with funeral insurance is you can end up paying more in premiums than the benefit your family will receive.
Finder reviewed 8 funeral insurance policies in Australia – only 2 policies call out in their policy wording that payouts will never be less than the overall amount paid in premiums.
Those who do are Medibank and Woolworths. But that still leaves 6 who make no such promise.
Keep in mind that if you stop paying your premiums, you'd lose any cover you'd paid for.
Funeral bonds
Funeral bondsA funeral bond is an investment product where you put aside funds to cover your funeral costs.
They are offered by a funeral director, friendly societies and some life insurers.
You pay a deposit and make regular payments to the bond. The idea is your money will grow with interest over time.
The money set aside in a bond can only be used for your funeral.
After you die, the payout will be the value of the investment at the time.
Pros
- The funeral bond limit is $14,000. This is set by the government and is comfortably higher than the $4,000 cost of a basic cremation (according to Moneysmart).
- Funeral bonds usually have no entry or exit fees.
Pros
- The funeral bond limit is $14,000. This is set by the government and is comfortably higher than the $4,000 cost of a basic cremation (according to Moneysmart).
- Funeral bonds usually have no entry or exit fees.
What to watch out for with funeral bonds
If you die before the bond is paid in full, your family only receives the balance at that time. And investments are never guaranteed to go up.
This differs from funeral insurance, which pays out the cover benefit you've selected after you pass any waiting period.
Life insurance
Life insuranceLife insurance provides your beneficiary with an agreed-upon sum of money in the event of your death or severe illness.
Insurers typically offer a funeral advance payment – sometimes called a "final expenses benefit" – as part of their policies.
The payout can be used by your dependants to pay for immediate costs of your funeral.
Pros
- Funeral advances tend to range from $10,000 to $15,000. In fact, TAL goes as high as $25,000.
- Payouts are tax-free and can take less than 2 weeks to be paid.
Pros
- Funeral advances tend to range from $10,000 to $15,000. In fact, TAL goes as high as $25,000.
- Payouts are tax-free and often take less than 2 weeks to be paid.
What to watch out for with life insurance
Life insurance policies can be useful for covering large debts, such as a mortgage, over a period.
However, insurers are clear in their policy wording that they aren't set up as savings or investment products.
So, they're not considered to represent good value if you're only interested in the funeral payout.
A savings account
A savings accountOne way you can build up cash for your funeral is simply to put aside some money in a savings account each month. This could be separate from your everyday bank account.
Don't forget to tell your family about the account and why you've opened it.
Pros
- Savings account interest rates are now paying over 4% p.a., making them an attractive option in the near future.
- Your money's safe. The government guarantees deposit accounts for up to $250,000.
Pros
- Savings account interest rates are now paying over 4% p.a., making them an attractive option in the near future.
- Your money's safe. The government guarantees most deposit accounts for up to $250,000.
What to watch out for with savings accounts
Payout times could well be slower than with funeral plans.
Banks won't release your funds until they're sure your beneficiaries have been properly identified. Potentially, this process can be sped up if you have a will in place.
Either way, your family may have to pay for the service themselves and get the money back afterwards.
Compare savings accounts or learn more about funeral insurance with Medibank.
If you're struggling financially, your family may be able to get a lump sum or short-term bereavement payment from Centrelink.
