Don't want to overpay for funeral insurance? Find out how much funeral insurance actually costs and what impacts what you pay
The last thing you want to do is leave your loved ones with a financial burden when you pass away. That’s why funeral insurance is a sound investment for many Australians, as it helps your grieving family cope with the immediate financial expenses that come with organising your funeral.
How much does will I pay for my funeral insurance premium?
There are several factors that influence the cost of funeral insurance. They include:
- The sum insured. The higher the sum insured, the more you will have to pay for cover.
- Your age. The greater your age at the time of application, the higher your premium is.
- Smoking status. If you're a smoker, then your premium will be greater.
- Gender. As females have a greater life expectancy than males, premiums for females may be lower.
- Specific features of your policy. If you choose a stepped premium for instance, you will start off with a lower premium.
- State or territory where you live. Different states have different governance taxes and fees, which can be included in your premium.
The average annual premium based on age
Figures are based on Australian Securities & Investments Commission's 2015 study.
There are two main ways you can pay for funeral insurance.
- Stepped premiums. Stepped premiums refer to premiums that increase as you age. Stepped premiums usually start at a lower rate than levelled premiums.
- Levelled premiums. Levelled premiums refer to premiums that stay the same throughout the life of your policy.
What type of premium is right for me?
- If you prefer saving money in the short term, then a stepped premium may be right for you.
- If your prefer saving in the long term, then a levelled premium will be more appropriate for you.
Automatic indexation benefit
Some funeral insurance plans will increase your sum insured each to cater to the cost of inflation. This will increase your premium (regardless of whether it is stepped or levelled) as well, unless you choose to decline this benefit.
Funerals are far from a minor expense. In fact, many people are surprised to find just how much it costs to farewell a loved one. According to MoneySmart, even a basic cremation service will cost around $4,000, while an elaborate memorial service with a casket, burial and flower displays could set your loved ones back $15,000.
When arranging a funeral, some of the costs you need to consider include:
- The funeral director’s fees
- The coffin
- Transport of the coffin to the site of burial
- The death certificate
- Relevant permits in your state or territory
- Burial or cremation costs
- Purchasing a cemetery plot
- Hiring a celebrant or a member of the clergy
- Putting a notice in the newspaper
- Providing food and drinks for the wake
The exact amount you will end up paying for funeral insurance varies from one policy to the next. For example, under some policies, if you take out cover when you turn 60 and keep paying premiums until you pass away at the age of 85, you may have forked out enough in premium payments to cover more than the cost of your funeral.
How can I make sure this never happens?
To ensure that you don’t end up paying any more for funeral insurance than you should, there are a few key policy features to keep an eye out for when choosing cover.
- Premium cap. A premium cap is a guarantee that your total premiums will never exceed the cost of the sum insured. Once the total amount you've paid in premiums reaches your sum insured, you'll no longer have to pay any premiums.
- Payout guarantee. A payout guarantee means you’ll never pay more in premiums than what you're paid out in benefits. When you make a claim, you’ll receive the greater between the sum insured and the amount you’ve paid in premiums.
- Premium discounts or a value promise. Look for policies featuring a guarantee that your premiums will never increase, even as you age. Some policies will even feature guarantees that your premiums will decrease over time e.g. by 5% for every five years you have cover in place.
Just like any other form of life insurance, the main benefit of funeral insurance is the peace of mind and security that comes with knowing that your passing won’t be a financial burden on your loved ones. It also means they can afford to give you an appropriate farewell.
Funeral insurance has many other benefits. For example, funeral insurance policies often have automatic acceptance, which means that people who may not be eligible for a life insurance policy can take out some form of financial protection.
You can arrange an affordable premium payment plan to suit your budget, and there may also be additional cover available if you die as the result of an accident.
If you have life insurance cover in place, your loved ones may be able to use the lump-sum benefit they receive when you die to help cover the cost of your funeral. If this is the case, you’ll need to remember to factor in funeral costs when calculating your sum insured.
There are also many modern life insurance policies that include a funeral advance benefit. Upon your death, these policies offer a prompt payment (for example $10,000 or $15,000) to help your beneficiaries cope with the expenses that immediately arise following your death such as your funeral. This is a common inclusion on many life insurance policies, so check the terms and conditions of your life cover policy.