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.
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.
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:
- 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.
- 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.
|Type of funeral cover||Things to watch out for|
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.
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 finder.com.au, 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.
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