Life insurance vs funeral insurance

A life insurance policy is better value for money, but funeral insurance could be ideal if you can't get life cover.

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When comparing life insurance vs funeral insurance, you need to consider the costs and benefits. Both provide a lump-sum benefit when you pass away, but funeral insurance only pays out enough to cover the costs of your funeral. Life insurance, on the other hand, provides you with long-term financial security.

We'll help you decide which is the better option for you.

What's the difference between life insurance and funeral insurance?

The main difference between life insurance and funeral cover is this:

  • Funeral insurance. Only pays you enough to cover the cost of your funeral.
  • Life insurance. Pays you between $100,000 and $15 million which can be used to clear any debts you have, including the mortgage, plus act as a form of income replacement for your family, covering everyday living expenses from school fees to groceries.

If you want insurance that pays for more than just your funeral, life insurance is the better option. We've listed some more key differences below.

Key DifferencesFuneral InsuranceLife Insurance
How does it pay you?In one lump-sumIn one lump-sum
When does it pay out?When you pass away or in some cases, if you become terminally illWhen you pass away or become terminally ill
How large is the payout amount?Between $3,000 and $15,000Between $100,000 and $15 million
How soon does it pay out?Usually within 3 and 14 daysIf your policy comes with funeral advancement, it should pay out within 14 days of a claim being submitted. The full insurance benefit will take longer, but most are processed within eight weeks, according to The Australian Prudential Regulation Authority (APRA)
What can it pay for?Your funeral, including the casket or urn, flowers, transport and catering.Anything your family (beneficiaries) wants, including paying off the mortgage, clearing debts and covering their everyday living expenses
How are my premiums calculated?There's little to no medical underwriting (E.g. they're not based on your health). You can choose between stepped (they go up each year) and level (they stay the same) premiums.Your age, health, medical history, smoking status and the benefit amount you choose. You'll usually have the option of level or stepped premiums.
Are premiums capped?Sometimes you get a value promise to ensure you don't pay more in premiums than the cover amount.No
What added benefits does it sometimes come with?
  • Additional payments for death by accidents
  • Multi policy discounts
  • Value promise (They will pay out the sum insured, or the value of the premiums you paid – whichever is higher)
  • A funeral advancement (where you receive a portion of the overall benefit within 14 days of submitting a claim to pay for the funeral)
  • Guaranteed renewability
  • Trauma and TPD options
  • Terminal illness cover
  • Interim cover
  • Suspending cover options
Are the premiums tax deductible? NoNo
Is the benefit payment taxed?No, you shouldn't have to pay tax on the benefit payout you receive.No, you shouldn't have to pay tax on the benefit payout you receive.
What's the application process like?Relatively straightforward. You need to meet age and residency requirements and usually no medical questions are required.Acceptance isn't guaranteed. You'll be asked to disclose your age, smoking status and medical history, which will determine whether you will be covered or not and the cost of your premiums.

What costs more: life insurance or funeral insurance?

Life insurance is not as expensive as you might imagine. In fact, a policy is likely to cost you around the same per month as funeral cover. Take a look at the example below:

PolicyWeekly cost
$8,000 funeral Insurance policy$8.63
$500,000 life Insurance policy$12.19

Life insurance cost based on the average of 5 brands available on Finder for a 40-year old male, non-smoker with no medical conditions. Funeral insurance price based on the initial premium for the first year for a 40-year old. Quotes last checked in March 2021.


While the costs may vary based on your personal circumstances, it's safe to say that there's generally not a huge difference in price if you're relatively young and healthy. This is despite the fact that life insurance provides a substantially larger benefit amount.

The reason? Funeral insurance policies have little or no medical underwriting, so premium costs are distributed fairly evenly no matter how healthy or unhealthy you are.

If you're older and have some pre-existing medical conditions, this means you probably won't pay as much for funeral insurance as you would life insurance, but if you're fit and healthy, you won't be able to take advantage of lower premiums like you can with life insurance.

Compare direct life and funeral insurance brands

Know what you're looking for? Compare life insurance or funeral insurance policies below and click through to get a personalised quote.

Name Product Maximum cover Maximum Entry Age Fully Underwritten? Terminal Illness Benefit Optional Extras
NobleOak Life Insurance
$15,000,000
69
$3,000,000
TPD cover, Trauma cover
Get your one month free when you buy NobleOak Life Insurance policy. Offer ends 31 December 2021. T&C's apply.
Real Family Life Cover
$1,000,000
64
$1,000,000
TPD cover, Trauma cover
Get a refund of 10% of the premiums you've paid (in the first 12 months) with The Real Reward™ .
Medibank Life Insurance
$2,500,000
70
$2,500,000
TPD cover, Trauma cover
Medibank health members save 10% on premiums every year. T&Cs apply.
Zurich Ezicover Life Insurance
$1,500,000
69
$1,500,000
No optional
Get your first month free and a 10% discount by taking out a second life insurance policy (discount applies to the second policy). Customers who suffer a serious side effect from an approved COVID vaccination may be eligible for a $50,000 one-off payment. T&C’s apply.
ahm Life Insurance
$1,500,000
65
$1,500,000
TPD cover, Trauma cover
ahm Health members can save 10% off premiums.
RAC Life Insurance (Only available in Western Australia)
$25,000,000
69
$25,000,000
TPD cover, Trauma cover
When you purchase RAC Life Insurance, WA residents receive complimentary RAC membership which includes access to discounts on fuel, savings on shopping, entertainment and more. T&Cs at rac.com.au.
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Name Product Maximum Cover Maximum Entry Age Minimum Sum Insured Premium wont increase with your age Expiry Age
Insuranceline Funeral Insurance
$15,000
80
$3,000
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 2022.
Apia Funeral Insurance
$15,000
80
$3,000
No expiry age as long as premiums are paid
Get up to $15,000 in funeral cover, including fast payout within 24 hours.
Real Funeral Cover
$15,000
79
$3,000
100th birthday
Receive 10% of premiums you’ve paid in the first 12 months with The Real Reward program.
Seniors Funeral Insurance
$15,000
79
$3,000
100th birthday
Get up to $15,000 in funeral cover, including an extra 25% bonus cover when you turn 85.
Medibank Funeral Insurance
$15,000
79
$3,000
No expiry age as long as premiums are paid
Medibank health members save 10% every year. T&Cs apply.
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Pros and cons of life insurance and funeral insurance

Still not sure what's the better option for you? Consider the pros and cons:

Funeral insurance

Pros

  • It provides your family with cash right away - the benefit payment is processed as soon as the claim has been approved.
  • It doesn't generally require a medical exam so is ideal for those who can't get life insurance
  • Eligibility requirements aren't usually as strict as life insurance e.g. you can often get cover up to the age of 79 and won't be asked about your medical history.

Cons

  • The premiums can be more expensive than premiums on term life insurance cover.
  • It's often not great value for money

Life insurance

Pros

  • Your beneficiaries can use the lump sum payment however they like.
  • It's generally more affordable compared to funeral insurance cover.
  • It can pay for your funeral as well
  • It provides peace of mind - ensuring the financial side of your family's future is comfortable.

Cons

  • It can be expensive if you're in poor health
  • Your family might have to wait until after the funeral to receive the payout.
  • You usually need to have a medical examination, which is not ideal for people with health issues, particularly seniors.
  • You usually aren't eligible for cover after you turn a certain age e.g. around 64

Do I need funeral insurance if I have life insurance?

Probably not. In Australia, most life insurance policies have a funeral component. This is generally a funeral advancement benefit in the region of $10,000 that pays out a portion of your policy within 14 days so that your family doesn't need to worry about paying for the funeral. Check with your provider if you have cover in place. If you do, you won't need to take out additional cover. If you don't, find out how much extra it would cost to add that to your policy.

If you're not concerned about a funeral advancement benefit, it still doesn't mean you need funeral insurance. A life insurance lump sum payout is generally more than enough to cover funeral expenses, among other things, when you die.

When should I consider funeral insurance?

Funeral insurance is worth considering if:

  • You only want to cover your funeral expenses.
  • You are unable to get life insurance due to any pre-existing medical conditions.
  • You are over 50 and are unwilling or unable to afford life insurance.

Compare life & funeral insurance policies

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