When you're still getting on with life, your own mortality isn't something you want to dwell on. But it's important to be aware of your options when it comes to your funeral expenses. After all, the costs be very steep, with Moneysmart research suggesting that arrangements can cost anything between $4,000 and $15,000.
What are the main costs of a funeral?
There are a number of things to look at when arranging a funeral. Each will vary in cost depending on the service providers. These include:
People are increasingly turning to prepaid funeral plans to take care of their costs. A recent Finder survey revealed that 53% of Australians – equivalent to more than 10 million people – intend to pay for their funeral while they're still alive. A further 8% won't prepay their funeral, but they wish they could afford to.
Different types of funeral plans in Australia
There are three main types of funeral plan available on the Australian market: Funeral insurance, Pre-paid funeral plans and Funeral bonds.
Funeral Insurance
With funeral insurance, you pay a monthly or annual premium to the insurer. In return, the beneficiary or beneficiaries you nominate receive an agreed lump sum, usually between $3,000 and $15,000.
Funeral insurance policies can vary significantly between providers. With funeral insurance, you aren't saving for funeral costs. Rather, you are buying insurance so that these costs can be met in the future if anything happens to you.
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You pay the same price as buying directly from the life insurer.
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Pros
A policy held within life insurance can pay a benefit of up to $25,000 in some cases. Alternatively, you can buy standalone funeral cover
You are typically covered from day one for accidental deaths
Guaranteed acceptance, with no medical underwriting
Payouts can be quick – potentially within 1 day
Worldwide coverage
Generally, it's a tax-free option for the policyholder
Cons
Premiums aren't locked in from day 1; they can increase as you get older.
Often there's no cover if you pass away due to a natural cause or an illness in the first 12 months. Premiums paid may be refunded, however.
You may be paying more in premiums than the cover amount that you have nominated.
If you can no longer keep up with the premium payments and cancel, you won't be able to get a refund on premiums paid.
Pre-Paid Funeral Plans
With a pre-paid funeral plan, you can organise a payment plan or pay for your funeral in advance. The cost for the funeral arrangement is locked in at today’s rates and won’t change regardless of any future changes. The benefit is paid to your family either as a lump sum or in instalments. When paid in instalments, an initial payment may be required upfront.
Be aware that the cost of a funeral director’s services and packages often vary from one to the other. So, make sure that you have the details of the costs to know what you are paying for.
Pros
Your funeral costs are fixed to the price at the time of application, even if your funeral is not for a number of years.
You can organise specific arrangements for your funeral together with the plan.
You can pay for your funeral arrangement in instalments.
No health checks required.
You may be able to maximise your pension entitlement, as the payments to your pre-paid funeral plan is not subject to income and assets test.
Cons
You may be required to pay a deposit when signing up for a payment plan.
If you are looking to move interstate, it may be difficult to transfer your funeral plan.
You may not get any of your money back if you change your mind.
There is no discount for couples or families, as pre-paid funeral plans are purchased on an individual basis.
Funeral Bonds
Funeral bond plans are investment products designed to put aside funds to cover your funeral costs. The money set aside in a bond can only be used for this purpose and gets withdrawn after you have died.
Generally, you can opt to invest in a funeral bond directly through an investment company (such as friendly societies), life insurers) or from a funeral director, and it can be assigned to your chosen funeral director.
Pros
There are usually no entry or exit fees
Funds invested in the bond are exempt from the income and assets tests
Can be more flexible if you need to relocate in the future
Cons
The final sum offered by a bond may not be sufficient in the event of rising funeral prices and/or inflation. This means your family may be required to cover the rest of your funeral expenses
If you die before the bond is paid in full, your family will only receive the amount that has been paid into the bond; plus any earnings from the investment
If you decide to discontinue your bond, you may not get your money back
How to settle on the right option for you
Choosing between different funeral plans and options to fund your last wishes can be tricky. A good general tip: Compare at least 3 quotes, so that you have a better understanding of whether you are getting the right plan for you at a competitive price. If you're still unsure, speak to an insurance broker or financial planner.
You pay the same as buying directly from the life insurer. Better still, we regularly run exclusive deals that you won't find on any other site – plus, our tables make it easy to compare policies.
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Our team of life insurance experts have researched and rated dozens of policies as part of our Finder Awards and published 250+ guides to make it easier for you to compare.
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Frequently asked questions
It seems so, yes. A recent report by Bare Cremation suggests more than a quarter (26%) of those who arrange a loved one's funeral suffer a form of financial hardship after paying for it. Furthermore, 2 in 5 people (40%) know somebody who's experienced hardship after meeting the cost of a service.
Superannuation. If you die, the balance in your super fund will be paid to your dependents or estate. This also includes any benefit payments from your superannuation life insurance policies. It may, however, take some time for the benefits to be released and your family may have to cover your funeral expenses initially.
Term Deposit/High Interest Savings Account. You may wish to set up a term deposit or high interest savings account and save until you reach the amount you deem sufficient to cover for your funeral expenses. Make sure that you let your relatives know about this account, so they can access the funds when they need to.
Understand the premium structure. Most policies adopt stepped premiums, which will increase as you get older. However, there are some insurers that offer level premiums and they are capped to the cover amount you have nominated.
No cover in the first 12 months unless it's for accidental death. Funeral insurance only covers you for accidental death in the first 12 months, but you will be covered for any cause of death past the 12 months period.
Find out more if you are able to make changes to your policy after it has commenced. For example, you may want to include additional people on your policy or change your cover amount.
If you are still young, consider applying for life cover instead. Some life insurance policies offer funeral advancement benefit as a built-in feature.
All funeral insurance policies offer a cooling off period. It's important to assess whether your needs are still aligned with the funeral insurance policy you have in place within this period. If you change your mind, you can cancel within the cooling off period and the premiums you have paid to date will be refunded.
The ability to transfer your plan. Check your provider allows you to transfer your plan to a different provider if you need to move to a different location to reside.
Understanding of the plan's terms and conditions. For instance you may not be able to get a refund on some policies.
Check if the policy offers a cooling-off period. This will give you the opportunity to reassess and change your mind if required.
Funeral fund rules vary by state. Many states have strict rules protecting your plans and payments in case the funeral directors go out out of business. Check your states rules around funeral plans before commiting as some states have more protections for buyers than others.
Ultimately, it's up to you to make this decision. By handing over the planning of their service to a prepaid funeral provider, some appreciate the chance to ease their family's burden at a challenging time. One common consumer question on prepaid plans is centred on what would happen if the company you've bought a plan with were to go bust. You could ask a provider this directly and see what reassurances they can offer.
In truth, the cheapest funeral plan may not be the best one for your needs. Also, the cost of prepaid plans vary a lot depending on your location, and how comprehensive your plan is. For example, you might opt for a cremation-only service, which will be cheaper than one which offers your family a celebrant to plan and conduct your memorial service.
James Martin was the insurance editor at Finder. He has written on a range of insurance and finance topics for over 7 years. James often shares his insurance expertise as a media spokesperson and has appeared on Prime 7 News, WIN News, Insurance News, 7NEWS and The Guardian. He holds a Tier 1 General Insurance (General Advice) certification and a Tier 1 Generic Knowledge certification, both of which meet the requirements of ASIC Regulatory Guide 146 (RG146).
Not sure who to trust when it comes to a funeral insurance companies? Compare quotes and providers with an adviser.
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