Does Life Insurance Cover Funeral Costs?

Find out if life insurance can cover funeral expenses and if it's the right option for you.

There are a number of options available to people looking to cover the cost of their funeral in Australia. According to MoneySmart Magazine funerals in Australia can cost anywhere from $4,000 to $15,000. Funerals are by no means a “one size fits all” type of service and the cost can vary greatly depending on the person's culture and traditions.

Does life insurance cover costs?

Many life insurance policies feature final expenses benefit payment to provide quick benefit to cover immediate costs of a funeral following policyholders death. While life insurance can cover you, it's a good idea consider all your options. There are a number of different choices available in Australia for people looking to cover their funeral.

  • Superannuation. Payment made from funds that have accumulated in superannuation fund.
  • Personal savings. Person can save for their funeral by setting up a term deposit or online savings account.
  • Pre-paid funeral cover. Can pay for funeral in advance.
  • Funeral bonds. Funeral can be paid for by investing in funeral bond either directly or through an investment company. The money that has accumulated can only be withdrawn after the person's death.
  • Funeral insurance. Funeral insurance provides a lump sum benefit payment after premium payments for a fixed amount of cover. Applicants can usually choose between fortnightly and monthly benefit payments.
  • Life insurance. Funeral may be paid for using the benefit payment from the persons life insurance policy. This may have been factored in to the original sum-insured or there may have been a “Funeral Expenses” benefit provided.

  • Funeral Insurance can be a suitable option for people who have been denied life cover in the past.

How does life insurance cover funeral expenses?

When applying for life insurance, applicants are required to assess their own situation to determine an appropriate level of cover. This involves considering all of the different financial obligations that would need to be covered in the event of their death including:

  • Mortgage
  • Rent
  • Food
  • Bills
  • Outstanding debts
  • Taxes
  • Medical costs
  • Education fees for dependents

And your funeral expenses

When determining this amount of cover, the policyholder could also factor in the cost of their funeral. This will ensure there is sufficient funds locked away so that the insured can receive the funeral they wish for and not leave their family with additional financial burden at an already stressful time.


Can life insurance offer an additional benefit to cover funeral expenses?

There are a number of life insurance policies that will also offer policy owners an early benefit payment designed for the sole purpose of covering their funeral expenses. This feature is known as Funeral Expenses Benefit or Final Expenses Benefit.

Typical terms and conditions of a Funeral Expense Benefit

Terms and Conditions it will vary from policy to policy. As an example, here are the terms of the AIA Life Cover Plan Final Expenses Benefit;

  • In the event that the policyholder dies before their policy expires, an advanced payment of the lesser of 10% of the policyholders sum-insured and $25,000 will be paid to assist them in covering immediate financial expenses.
  • Certified copy of death certificate must be provided before a payment can be made.
  • Benefit payment is deducted from the insured’s life cover benefit.

Funeral Expense Benefits in different policies

Adviser brandsFuneral AdvancementConditions
AIA
  • yes
The lesser of 10% of the sum insured and $25,000
AMP
  • yes
the lesser of $20,000 and the sum insured
Asteron
  • yes
The lesser of 25% of the sum insured and $20,000
BT
  • yes
The lesser of 10% of the sum insured and $25,000
ClearView
  • yes
The lesser of $25,000 and the Accidental Death Cover benefit amount.
Comminsure
  • yes
Up to $30,000
MLC
  • yes
Up to $20,000
OnePath
  • yes
Up to $25,000
TAL Accelerated Protection
  • yes
The lesser of 10% of the sum insured and $25,000
Zurich Futurewise
  • yes
The lesser of 10% of the sum insured and $15,000
Zurich Wealth Protection
  • yes
Up to $15,000
ANZ
  • yes
Up to $15,000
NobleOak
  • yes
Up to $15,000
Zurich Ezicover
  • yes
Up to $15,000
InsuranceLine
  • yes
Up to $10,000
Real
  • yes
Up to $10,000
TAL Lifetime Protection
  • yes
The lesser of 10% of the sum insured and $25,000
Woolworths
  • yes
Up to $10,000
American Express
  • yes
Up to $10,000
Data taken from brand product disclosure statements on May 2017. Benefits, conditions and amounts are subject to change at anytime.

General Conditions for Funeral Expense Benefits

  • Benefits are not payable in the first 13 months of a policy
  • Death certificate or other evidence is required
  • Funeral advancements typically pay out within 5 days

Terminal illness benefits

Many life insurance policies have a terminal illness benefit. This provides an advance payment to the insured person when they are:

  • Diagnosed with a terminal illness
  • Given less than 12 months to live

Terminal illness benefits can pay for ongoing medical and end-of-life costs, including funeral costs.

To access this benefit you will need to:

  • be diagnosed after the policy begins and before it ends
  • fall ill before the policy's benefits expiry age
  • provide proof from a medical specialist

Terminal Illness Benefits are usually paid out as combination of a lump sum and the funeral expense benefit.

Policies with a Terminal Illness Benefit

Adviser brandsConditionHow much is paid out
AIA24 months
AMP12 monthsLump sum + the funeral advancement benefit
Asteron24 monthsLife Cover sum insured less any payments we have made for: the TPD or trauma benefits (Unless you have double tpd/trauma)
BT24 monthsDeath benefit is paid as shown on certificate
ClearView12 monthsThe grater of your benefit amount at the date you die and premiums you have paid over the life of the policy
CommInsurePaid if policyholder is likely to pass away within 24 months This benefit isn’t available once Life Care ends.Original sum insured
Macquarie - now issued by zurich12 monthsOriginal sum insured
MLC24 monthsOriginal sum insured
OnePath24 monthsLump sum benefit
TAL12 monthsWe pay a lump sum in the event of death or diagnosis of a Terminal Illness. The amount we pay is the Benefit Amount you choose.
Zurich Futurewise12 monthsProvides a lump sum if the insured person dies or is diagnosed with a terminal illness.
Zurich Wealth Protection24 monthsDeath benefit
ANZ12 monthsThe amount you're covered for is shown on your Policy Schedule.
NobleOak12 monthsUp to a maximum of $3 million
Virgin12 monthsUp to $1.5 million cover for death and terminal illness.
Zurich Ezicover12 monthsThe amount payable under this Death benefit is reduced by any amount paid under the Cash advance benefit.
InsuranceLine12 months$1.5 million
Real12 monthsOriginal sum insured
TAL12 monthsOriginal sum insured
WoolworthsWe will pay the Woolworths Life Insurance Benefit Amount as a lump sum if a Life Insured is diagnosed with a Terminal Illness while the Policy is in force. Payment of the Benefit Amount, as a result of a Terminal Illness claim, will end cover under this Policy in respect of the relevant Life Insured.Original sum insured
American Express12 monthsThe amount payable under this Death benefit is reduced by any amount paid under the Cash advance benefit.

Data taken from brand product disclosure statements on May 2017. Benefits, conditions and amounts are subject to change at anytime.

General conditions

  • After this plan commences
  • Before this plan ends, and
  • Before you reach the benefit expiry age for this plan.
  • Proof of from an approved specialist confirming you are likely to pass away

Payment

  • Terminal illness is typicall equivelent of the lump sum + the funeral advancement benefit

So why would I consider taking out a standalone funeral insurance policy?

Looking for a basic level of cover

Funeral insurance can be a smart option for people that are simply looking to get protection just for their funeral expenses. They may not feel the need to take out life cover and are happy to just receive the benefit payment to cover the costs of their funeral.

Unable to successfully take out life cover

Some policyholders may present too great a risk to insurance underwriters and be unable to take out life cover. There is no medical underwriting required for funeral insurance whatsoever so it can be a smart option for people classified as high-risk.


Be aware of this trap when buying funeral insurance

It's important that policyholders know exactly what they will pay over the course of their Funeral Insurance Policy. Premiums increase with age and there are many stories of people having paid far more in premium payments than the sum that is actually insured. A smart way around this is to find a policy that will cap the premium payments once they have reached the sum-insured.

Know exactly what you are covered for

It is critical that all applicants are clear on what events their policy will actually cover them for. Many policies will only provide a benefit payment for deaths caused by accidents in the first two years of cover. Death caused by critical illness may not be covered so this where some buyers may lead towards covering their funeral with life insurance.


How can I avoid being ripped-off if I choose funeral insurance?

Features that help you avoid rip-offs

What does this mean?

  • Levelled premiums
Policies offer you a choice of levelled or stepped premiums. A levelled premium doesn't rise as you get older which ensures that your policy is affordable in the long term.
  • Premium caps
This ensures you no longer have to pay any more in premiums once your total premiums have reached your sum insured.
  • Payout guarantees
This ensures your dependents are paid out the greater between your total premiums paid and your sum insured when you pass away.

It's better to be prepared for your final expenses and funeral costs

People are often surprised at the final cost of funerals so it’s always best to have some kind of financial planning in place. Regardless of whether you wish to pay for your funeral with a standalone funeral insurance policy or via the benefit payment from life cover, it is important to make an assessment of what the cost is likely to be so you do not end up paying too much or too little for your cover.

What if I can't decide which is right for me?

If you are unsure what option is most suitable for your situation, an insurance consultant can explain the different policy options and help you determine an appropriate amount of cover for your situation.

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