Mourner holding rose at a funeral

Funeral insurance vs funeral plans

What's the difference? Let's clear up the confusion so you can decide which option is best for your circumstances.

Although they sound the same, funeral insurance and pre-paid funeral plans are fundamentally different.

  • Funeral insurance. Requires you to pay annual premiums to insure an amount. This is then used to pay for your funeral expenses. During the application process you can choose a benefit amount (up to $30,000), which is the paid out as a lump sum to your loved ones when you pass away.
  • Pre-paid funeral plan. This allows you to pay for your funeral in advance. You can lock in the cost of your funeral at today’s prices and can enjoy the security of knowing that those prices won’t change in the future. You also can predetermine the specific items you want on your funeral, such as the type of cask.

Both funeral insurance and funeral plans have benefits and drawbacks, so read on to find out which option is best for you.

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Benefits and drawbacks

Funeral insurance

  • Tax free. Your loved ones won't need to pay tax on the amount received with funeral insurance.
  • Unpredictable total costs. If your circumstances change you might not be able to keep up with payments.
  • Accident coverage. Many plans pay out more in the event of an accident.
  • Tax implications. Payments count toward asset tests and may affect your pension received.
  • Fast payment. Your family should receive funds within 24 hours.
  • High total cost. Usually cost more than funeral plans in the long run.

Funeral plans

  • Set charges. Fixed costs that won't change over time.
  • No indexing option. Funeral plans won't automatically increase your benefit to keep up with inflation.
  • More control. You can decide on the ceremony you want and make sure it's paid for.
  • Tax issues. When paid out, funeral plans will count as taxable income for your loved ones.
  • Lower cost. Usually costs less than funeral insurance in the long run.
  • No refunds. Once money is put towards a funeral plan it stays there.

Why would I choose funeral insurance or a funeral plan?

Reasons for choosing funeral insurance

  • Accident cover. Most funeral insurance policies will cover your funeral costs from day one if death occurs as the result of an accident.
  • Extra cover. If you die from an accident in the first 12 months of cover, you may be eligible to receive an additional benefit up to three times the sum insured.
  • Easy to apply. There is no medical underwriting with funeral insurance policies and acceptance is guaranteed. This makes it worth considering for people who can't qualify for life cover due to health or age restrictions.
  • Fast payout to your dependents. Most successful claims are paid within 24 hours, giving your family fast access to the money needed for urgent expenses.
  • Tax-free. Your loved ones will generally not have to pay any tax on the funeral insurance benefit they receive.

Reasons for choosing a funeral plan

  • Security. You can enjoy the peace of mind that comes with knowing your family won't have to worry about finding the money to pay for your funeral when you die.
  • Fixed costs. Your funeral costs are fixed at the time you take out a funeral plan and will not increase in the future.
  • Extra control. You can plan and organise the funeral yourself, ensuring that you are given the farewell you want.
  • Easy to apply. You don't have to undergo any time-consuming or invasive health checks before taking out a funeral plan.
  • Flexible payment. Funeral plans allow you to pay for your funeral in instalments.
  • No extra expenses. All the money you pay will go towards your funeral expenses and you won't end up paying more than the cost of your funeral.
  • Pension benefits. As the payments you make towards a funeral plan are not subject to an income and assets test, they won't effect your pension entitlement.

How do I decide which one is right for me?

Although you have been given an overview of the main benefits, drawbacks and features of funeral insurance and funeral plans, you may still be unsure of which one is best suited to your situation. While no cookie-cutter solution exists as everybody's circumstances a different, some general advice would be to:

Opt for funeral insurance if:

  • You are after cover that also protects you from accidental death the moment you buy your policy.
  • You are unsure of how much your funeral expenses will be. In this case you can insure a set sum.
  • You don't want to organise specific funeral items in advance.
Opt for a funeral plan if:

  • You have a fixed amount in mind with how much you'd like to spend on your funeral.
  • You are after flexible payments and a plan that won't be cancelled if you can't make a payment.
  • You are after a cheaper option.

Conditions and restrictions to be aware of

Type of funeral coverThings to watch out for
  • Funeral insurance
  • Premium rises. Most funeral insurance offers stepped premiums, which means your premiums will increase as you get older.
  • Paying more than necessary. Unless your funeral insurance policy includes a premium guarantee, the total premiums you pay could end up being more than the benefit paid by the policy.
  • No refunds. If you cancel your cover or fall behind on premium payments, you probably won’t be refunded any of your previous premium payments.
  • Limits in first 12 months. If you die as a result of anything other than an accident in the first 12 months of your policy, no benefit will be paid.
  • Not being able to change cover. If you want to change your policy at a later date, for example to include an additional person, check to see whether the insurer will allow this.
  • Life cover. Many life insurance policies include a funeral advancement benefit, which pays out a portion of the sum insured when you die to help your family pay for funeral expenses. This may be a better option for some people.
  • Funeral plans
  • Deposit may be required. You may need to pay a deposit when you sign up for a plan, and this amount may be difficult to afford.
  • No refund. If you change your mind about a funeral plan, you may not be able to get any of your money back.
  • Hard to transfer. If you’re moving interstate, transferring your funeral plan to your new home can be difficult.

I've seen funeral insurance ads that sound too good to be true, are they?

You should be wary about policies that are sold through TV commercials, over the phone and by door-to-door salespeople. While these types of policies may sound like a good idea during the advertisement or sales pitch, it’s often difficult to gauge whether they really offer value for money. Many feature stepped premiums that increase each year, and you can end up paying much more in premiums than the benefit amount you receive.

Jacobs funeral cover: Overspending on funeral insurance and how to avoid it

The example below shows how you can end up spending more than your insured amount if you rush into a funeral insurance decision without reading the fine print. It also highlights some of the advances the funeral insurance industry has made to reduce the chances of their consumers being scammed.

Before you sign up for any type of funeral insurance product, make sure to examine a range of reviews about that policy and compare it with similar options and quotes. You can find plenty of useful information on an insurer’s website, on a comparison site like, and by reading online consumer reviews of insurance products on customer review websites.

  • Remember that the cooling off period can rescue you from a bad policy

If you’ve been hoodwinked into buying the wrong policy or you’ve simply changed your mind about taking out funeral insurance cover, check the product disclosure statement for the cooling-off period. Most insurers offer a 30-day cooling-off period after you have been accepted for cover, and if you cancel your policy during this time you are entitled to a full refund of any premiums you have paid.

What's the long-term expense of funeral insurance?

The amount you spend on insurance will depend on your personal circumstances. Some of the key factors that influence your premium amount include:

  • Your age.
  • Your sex.
  • What State or Territory you live in.
  • Whether your a smoker or a non-smoker.
  • How much you insure yourself for.

You can also use this chart to see the average amount that Australian's spend on funeral insurance depending on their age when they take out cover:

Compare funeral insurance from these direct brands

Name Product Maximum cover Maximum Entry Age Minimum Sum Insured Guaranteed Future Insurability Expiry Age Short Description
No expiry age as long as premiums are paid
Take out an InsuranceLine Funeral Insurance policy and you could receive a bonus $100 gift card. T&Cs apply. Ends 31 March 2019.
No expiry age as long as premiums are paid
Receive up to $15,000 in funeral cover. Premiums reduce by 5% every 5 years you hold your Policy.
No expiry age as long as premiums are paid
Get up to $15,000 in funeral cover with Guardian Funeral Insurance.
No expiry age as long as premiums are paid
Get the Funeral cover up to $15,000. Plus Medibank health insurance members can save 10% off premiums.
No expiry age as long as premiums are paid
Get up to $15,000 in funeral cover with Australian Seniors Funeral Insurance.

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Picture: Shutterstock

William Eve

Will is a personal finance writer for specialising in content on insurance. While he cannot give personal advice to clients, Will enjoys explaining the intricacies of different types of protective cover to help individuals and businesses find affordable cover that won't leave them underinsured.

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