Life insurance pays out a large lump sum to you or your family if you die or, in some cases, if you're diagnosed with a terminal illness. You can customise that lump sum to suit your needs, but it's usually between $100,000 and $15 million.
It's intended to help your family cover general living costs that would be difficult to meet without your usual earnings - for example, the mortgage, rent, school fees and so on.
Funeral insurance has a lower benefit limit, usually around $15,000. It's also paid out to your nominated beneficiary when you die or, in some cases, when you're diagnosed with a terminal illness.
The aim is to help your family cover the cost of your funeral, but they can spend the benefit however they choose. There's no legal requirement for them to spend it on your funeral.
Life insurance tends to cost more than funeral insurance but this is because it covers more.
| Key differences | Life insurance | Funeral insurance |
|---|---|---|
| How does it pay you? | In one lump-sum | In one lump-sum |
| When does it pay out? | When you pass away or, in some cases, if you become terminally ill | When you pass away or, in some cases, if you become terminally ill |
| How large is the payout amount? | Usually between $100,000 and $15 million | Usually between $3,000 and $15,000 |
| How soon does it pay out? | The average claim time for life insurance purchased directly from an insurer is 2.6 months. However, if your policy comes with funeral advancement, it should pay out a smaller lump sum within 14 days. | The average claim time for funeral insurance purchased directly from an insurer is 0.7 months. |
| What can it pay for? | Anything your beneficiaries choose. Commonly, it’s used to clear debts, pay for housing costs, and cover everyday living expenses. | While it's intended for your funeral, the benefit can be used in any way your beneficiary chooses. |
| How are my premiums calculated? | Your age, health, medical history, smoking status and the benefit amount you choose will all impact your premiums. You'll usually have the option of stepped premiums (which go up each year) or level premiums (which stay at a similar price throughout the length of the policy). | Usually based on your age and benefit amount. You can also choose between stepped and level premiums. |
| Are premiums capped? | No. | No. However, some policies offer a value promise to ensure you never pay more in premiums than the amount you're covered for. |
| What added benefits does it sometimes come with? |
| |
| Are the premiums tax deductible? | No | No |
| Is the benefit payment taxed? | No | No |
| What's the application process like? | Acceptance isn't guaranteed. You'll be asked to disclose your age, smoking status and medical history, which will determine whether you’re eligible for cover, as well as the cost of your premiums. | Relatively straight forward. You may need to meet age and residency requirements. |
In most cases, life insurance is more expensive than funeral insurance. However, depending on your age, chosen benefit size, and health status, you might find some life insurance policies are a similar price to funeral insurance. Your own quote will differ, this should be used as a guide only.
| Policy | Monthly premium for 50 yo | Monthly premium for 60 yo |
|---|---|---|
| Funeral insurance of $5,000 | $27.79 | $38.51 |
| Funeral insurance of $15,000 | $83.36 | $115.54 |
| Life insurance of $100,000 | $23.09 | $71.47 |
| Life insurance of $500,000 | $94.95 | $310.92 |
Quotes are based on the average of three policies, using the information of a non-smoker with no medical conditions. Last checked October 2024.
There are a number of eligibility criteria for life insurance, including age, occupation, health, and lifestyle factors.
Eligibility for funeral insurance is much broader. Generally, you need to meet specific age requirements and be an Australian resident.
How standalone life insurance works
Standalone life insurance will provide a large lump-sum payment to your family when you die, typically between $100,000 and $15 million. The vast majority of life insurance policies also come with a funeral advancement benefit, which is very similar to funeral insurance.
How standalone funeral insurance works
Standalone funeral insurance pays out a lump-sum benefit to your beneficiary, usually between $5,000 and $15,000. It's intended to cover the cost of your funeral so your family aren't out of pocket, but they can use the benefit however they like.
How life insurance with funeral insurance works
Generally, it's not required to have separate life and funeral insurance policies and the vast majority of life insurance policies include a funeral advancement benefit which is essentially a stand-in for life insurance. Even if they don't include this component, your family will be receiving a larger lump sum which can help with the cost of your funeral.
Direct: You can purchase life insurance directly through the insurer, usually online or via phone.
Broker: Insurance brokers can help find more tailored life insurance that may be better suited to your specific needs - for example, any health conditions you may have.
Super: Most superannuation funds offer life insurance to their members. Although they are generally less comprehensive, costs are lower and premiums are deducted from your super.
Direct: The most common way to purchase funeral insurance is directly from the insurer.
Broker: Some specialist brokers can help you find funeral insurance that's right for you.
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