Planning for funeral expenses is an important consideration for both pensioners or those entering retirement, who wish to remove the burden of funeral expenses of loved ones.
Funeral insurance can help you take care of their funeral costs. It's also an alternative if you are unable to get life insurance. Some benefits include:
Offers a range of cover options. Choose a benefit amount from $5,000 to $15,000 in intervals of $1,000.
Provides a fast payment. Most policies pay usually within two business days of passing away. Some are even as fast as one business day.
Accidental death benefit. If you pass away from an accident in the first 12 months you'll receive a benefit. If it's after 12 months you'll receive a benefit too (sometimes greater)
No medical exams. There's usually no forms and things like medical exams.
Guaranteed acceptance. Some policies will guarantee acceptance for people even up to 80 years of age.
Never pay more in premiums than your sum insured. Many policies offer a value guarantee where the amount you pay in premiums doesn't exceed how much you're insured for.
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Updated August 22nd, 2019
8 October 2018 update
A word on funeral insurance
The funeral insurance industry has received criticism in the past for paying out less overall than the amount it collects in premiums. As a policyholder however, this type of situation is mostly avoidable if you understand a few things about cover before buying.
Check if your premium goes up with your age
Policies can be cancelled if you stop making premium payments. That’s why it’s crucial to understand if your premium is:
Stepped (goes up as you age) or
Level (stays the same)
Make sure you have a ‘value guarantee’ in place
A value guarantee ensures that you wont pay more in premiums than you are paid out by your policy. This comes in a few forms:
You get the higher between premiums you’ve paid and the funeral benefit
Your premiums are stopped at a certain age or amount
There is usually no medical underwriting involved with funeral insurance. However the exception is after a certain age (depending on the insurer), when a medical examination will be required before cover is offered. The only health question normally asked is whether you are a smoker. If you smoke, you will pay a higher premium.
What are the age requirements for funeral insurance plans?
Funeral insurance can be obtained without a long application process.
No medical examinations*
Unlike some other forms of insurance, there is no medical examination involved. The only health question you are asked is if you're a smoker. If you are a smoke you will have a higher premium.
Payout for your dependents
What does this mean?
You benefit is paid out to your children or family, usually within two days of your passing.
Lump sum payment
One whole payment is made to cover your funeral and final expenses.
Accidental death cover
Your benefit is paid in full if due to an accident, you pass away during the waiting period of your policy.
Your benefit is paid if you're diagnosed with a terminal illness after the waiting period of your policy.
*No medical examinations applies if you're within the policy's age requirements. Policies may not cover over a certain age (e.g. 90 years old) or require a medical examination
Look out for these features if you're after cover
Look out for these features in your policy if your after funeral insurance.
Features that can protect pensioners
What does this mean?
Choice of premium type
Choose between levelled or stepped premiums. A levelled premium doesn't rise as you get older which can be useful as you start relying on your pension.
This caps your premiums (when they reach a certain total) to ensure that you don't spend more than what your family will be paid out.
You're paid out the greater between your total premiums paid and your sum insured.
If there ever comes a time where you're unable to make a premium payment, some policies will offer a grace period (usually 1-3 months) for you to reinstate payments. You are still covered for accidental death during this time.
How can this help me?
Cover from anywhere in the world, around the clock.
Free will kits
Some policies include a will kit: Use this to help with your estate planning.
How much will funeral insurance cost me?
The above premium estimates are based on Australian Securities & Investments Commission's 2015 study.
Can I pay for cover with my pension?
Based on the above estimates, if you were to start paying for a premium at the age of 65 years then you would pay on average, $620 in premiums per year.
The fortnightly amount you would be expected to pay under these circumstances is roughly $24 per fortnight.
Consider your fortnightly expenses
If you are able to take out $24 per fortnight after covering all your living expenses with your pension, then you can afford funeral insurance.
Consider your personal circumstances
While you may be able to afford funeral insurance, consider your personal circumstances. You may wish to save for a funeral instead or put your left over pension elsewhere.
Keeping payments affordable with a fixed income or pension
Funeral insurance is usually paid with a choice of stepped or level premiums.
Stepped premiums. Calculated on your age at the time of applying and increase each year as you get older.
Level premiums. Fixed amount agreed upon at the time of taking out your policy and remain the same for the life of your policy.
Which payment type is right for me?
If you are on a low fixed income, such as a pension, level premiums mean your funeral insurance will always cost the same.
Beware of the automatic indexation option
If your policy has automatic indexation enabled, your premium may still go up even if it's levelled. This will increase the amount you've insured to keep pace with inflation. If you're on a fixed income, it may be necessary to opt out of this option.
Am I covered if I have been diagnosed with a terminal illness?
Funeral insurance will pay you out for a terminal illnesses after the policy's waiting period. This is usually a 12-month period, depending on the policy.
What if I become terminally ill during or before the waiting period?
During the first 12 months of your policy, most insurers will only pay a benefit if you pass away as the result of an accident. If you are diagnosed with a terminal illness during that 12-month period, most policies will offer a refund on your premium payments.
Be aware of these funeral insurance pitfalls
How do I avoid this?
Paying more in premiums over the years than your funeral would actually cost you
Premium caps. Choose a policy that caps your premiums when you’ve paid the benefit amount, with cover continuing free after that.
Not being able to keep up your payments and losing all you have previously paid
Premium pause options. Look for a policy that offers a premium pause option or a grace period if you can't make payments.
Not taking out a high enough benefit amount to cover your funeral costs.
Automatic indexation. Take out slightly more than you would currently need to allow for inflation over time or to opt for automatic indexation.
Television and other forms of advertising
Funeral insurance is heavily advertised to pensioners on daytime television and through telephone cold calling. It is promoted as being a relatively small cost (often the price of a cup of coffee) in return for the peace of mind of knowing you won’t be burdening your loved ones with your funeral expenses.
However, unless you opt for a level premium, the cost will increase over time to where it could become unaffordable. Purchasing funeral insurance should be a considered decision, where your rights and options are clearly explained; something which is simply not possible in a 30-second commercial.
Steps to take if you're not satisfied with the policy you've purchased
If you find yourself being rushed into taking out a funeral policy that, upon reflection, isn’t what you wanted, you can still get your money back if you are within the cooling-off period.
Australian Consumer Law entitles you to a minimum ten-day cooling off period if you buy a policy. If you change your mind, you can ask the insurer for a full refund of any premium paid, providing you are within that period. Fortunately, most insurers offer a 30-day cooling off period, so you should have plenty of time to be able to review your policy and cancel it if it doesn’t meet your needs.
* The products compared on this page are chosen from a range of offers available to us and are not representative of all the products available in the market. There is no perfect order or perfect ranking system for the products we list on our Site, so we provide you with the functionality to self-select, re-order and compare products. The initial display order is influenced by a range of factors including conversion rates, product costs and commercial arrangements, so please don't interpret the listing order as an endorsement or recommendation from us. We're happy to provide you with the tools you need to make better decisions, but we'd like you to make your own decisions and compare and assess products based on your own preferences, circumstances and needs.
Maurice Thach is the publisher for life insurance and business insurance at Finder and has been writing about insurance for 3+ years. His is favourite question is "Am I covered for _____?". Maurice has completed a Tier 1 Life Insurance Certification and a Tier 2 General Insurance Certification under ASIC's Regulatory Guide 146. This means he can confidently provide general advice for life insurance and non-life insurance products to Aussie readers everywhere. Outside of work, you'll probably find Maurice hitting up the nearest basketball court.
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