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Benefits of Funeral Insurance

  • A cash benefit is paid to your beneficiary when you pass away.
  • The lump sum benefit is usually paid within 72 hours after receipt of a valid death certificate and the required documentation.
  • Does not require a medical exam or answering a list of possibly intrusive medical questions.
  • Worldwide cover, 24/7 Cover.
  • You can apply if you are aged between 17 and 80 years old.

Funeral Insurance

It’s expensive to die. Which is why right now is the best time to start thinking about how you’re going to pay for your funeral. Proper planning is essential to eliminating uncertainty and ensuring your loved ones aren’t financially burdened when your time comes.

Funeral insurance helps those you leave behind fund your final expenses. It’s your responsibility to cover the costs of your funeral, including the obituary, the ceremony, and your cremation or burial. Even if you were to leave sufficient money behind, there’s no guarantee that it can be accessed in time. Your family needs your funeral insurance money.

There are a variety of funeral insurance policies available; the trick is to find one that best suits your needs. We’ll take you through the steps of deciding which insurance is best suited to your particular requirements, weighing the pros and cons of each option.

What is funeral insurance?

Funeral insurance also referred to as burial life insurance or final expenses is a type of insurance where the cash benefit is paid to the beneficiary or policy owner on the insured person’s death. The cash proceeds can be used to cover the cost of your funeral or other costs as required.

History of funeral insurance

In the past, funeral insurance was only available as a stepped premium, which increases as you age. This resulted in policies being cancelled because pensioners could no longer afford to pay for their policies. In 2014 a total of 72,091 funeral insurance policies were cancelled, which is clearly illustrated by the average premium per age group graph below.

History of funeral insurance
Source: Responses provided by insurers to ASIC. All persons insured as at 30 June 2013.

ASIC became of aware of this trend and launched an investigation into the market. Based on their findings, ASIC released a report stipulating recommendations for improving burial insurance products in Australia. The most impactful recommendations included:

Old style funeral insurance policies vs New

If you have an old style funeral insurance policy, it might be worth reviewing and comparing to some of the new types of polices.

Typically older type polices had these attributes:

Following the recommendations were implemented by a number of insurers therefore a number of newer types of polices (not all) have these attributes:

Can you change from an older style funeral policy to a new one?

Yes, you can and a number of the newer policies will allow you to have no waiting period or accidental death period if you are replacing a like for like policy with the same sum insured. Important for you to review the pros and cons of your existing policy vs the newer ones and ensure it meets your needs as you may find the older style policy may still be of greater benefit to you as each person’s situation is unique.

Who is eligible?

Generally, any Australian citizen between the ages of 17 and 80 years can apply for funeral cover. However, the entry age will vary depending on the insurer and product.

Benefits of having a funeral insurance policy

Who do they pay the benefits to?

Your nominated beneficiaries or policy owner will receive the lump sum benefit (If the insured person and the policy owner are the same person the benefit will be paid to the estate).

This person or persons can be a family member or friend, or you can decide to nominate the executor of your Will as a beneficiary. Depending on your policy you can usually name up to four beneficiaries to receive your benefit and choose which percentage each person will receive.

How soon do my beneficiaries get paid?

As soon as possible after your death, your primary beneficiary should contact your funeral insurance, provider. They’ll be asked to fill out a claim form and provide proof of death; this may include a valid death certificate or evidence from a registered medical practitioner. If the claim is approved, your beneficiaries could receive the lump sum benefit within 48 hours, depending on the insurer.

What am I covered for?

You will be covered for any type of death worldwide. However, during the first 12 months (select insurers may require 24 months) of your policy commencing or being reinstated, you’ll generally only be covered for Accidental deaths. Thus, death due to natural causes will only be covered after 12 months. In this way, it is possible for insurers to keep your premiums as affordable as possible.

What to look out for in a policy

When comparing funeral insurance policies in Australia, you should look at the combined value. To find the right funeral product you first need to know what types of cover is available. Secondly, be aware of the additional benefits each cover provides, so you know what makes one funeral plan better than another. Thirdly, look at the exclusions and make sure you know exactly what you are not covered for.

Different ways to cover funeral costs

The amount of funeral cover you need will depend on your specific requirements and how you want your funeral to be planned. According to ASIC, the average funeral costs between $4,000 and $15,000. Below is a quick look of the average sum insured people tend to purchase.

The costs associated with a funeral vary depending on the type of funeral you want. General costs may include:

To get help paying for your funeral, you might want to shop around and compare funeral cover types to find the best option for you. Some cover types might not be relevant to your needs. Even though a specific option seems most affordable, you need to make sure you understand the product.

The different ways you can pay for your funeral

You have a number of options of purchasing either pre-paid funeral, a funeral bond or funeral insurance policy. Before deciding on one or the other, here are the basics of each funeral cover type and their pros and cons.

Source: Responses provided by insurers to ASIC. Active policies as at 30 June 2013.

Pre-paid Funerals

Pre-paid funerals enable you to choose and pay for your funeral in advance through your local funeral director. This option usually appeals to people that want a bit more control over their funeral arrangements. The style and type of funeral are documented in a written contract and paid for at today’s prices.

ProsCons
The pre-paid option allows you to choose the type of funeral you want, which might result in a more affordable option.Because you’re paying for your funeral in today’s prices, it will not keep pace with the rising costs associated with funerals. Your loved ones will have to work with what they get.
Your loved ones won’t need to pay any additional amount for your contracted funeral, regardless of when the funeral is required. However, this is subject to the specific terms and conditions set out in your pre-paid funeral contract.If you decide to move to another city or country, the price of your funeral cannot be guaranteed.
The amount you pay will be kept secure by an independent entity and properly invested until the funeral service is required, only then will the funds be released to the funeral director.If your death occurs interstate or overseas, there will usually be an additional fee for the transportation of your body.
In the unlikely event that your chosen funeral director goes out of business, you can organise to have your pre-paid plan transferred to another funeral director.If you cancel your pre-paid funeral plan after 14 days of confirmation receipt, you will usually NOT get your money back.
Generally, you have two options when paying for a pre-paid funeral. You can pay the lump sum upfront, or you might be given the option of paying the funeral director in instalments.

Funeral Bonds

A funeral bond is an investment product that helps you save for your funeral. Your money gets invested and earns interest, enabling you to accumulate funds to meet future funeral expenses. You can usually buy a funeral bond from a funeral director or life insurer.

ProsCons
The investment grows in value over time and becomes payable on your death.A funeral bond does not guarantee against rising funeral prices.
The amount you pay for your funeral bond will be exempt from any asset or means testing (up to certain limits), meaning it will not be included when assessing your eligibility for a age pension.The money received from the investment might not keep up with inflation. Similarly, the money you paid for the bond may not cover what a funeral costs when you pass away.
The money can only be used for your funeral and can’t be taken out early, thus safeguarding it for your funeral.You may not get your money back if you decide to cancel the funeral bond.
You can pay for your Bond in a lump sum or instalments.If you decided to pay in instalments and die before the bond is paid in full, you’d only receive what you’ve paid up until that point, including any money earned (if any) on the investment. Thus, your family might have to make up the difference to cover your funeral expenses.

Before you sign any documents, make sure you’ve carefully read the product disclosure statement (PDS), and understand the costs associated with a pre-paid or bond funeral policy and any exclusions tied to it.

Funeral Insurance

Funeral insurance cover pays out a lump sum benefit upon your death, covering the cost of your funeral and related expenses. There are a variety of options available, but generally the best options are level, capped premium policies with a short accidental death period of 12 months or if replacing an existing policy there can be no accidental death period offered by select providers.

What is a funeral insurance policy?

A funeral insurance policy is an insurance contract between an insurer, and the policy owner where it is agreed according to the policy terms and conditions (PDS and or policy documents) that the policy owner will make regular premium payments in exchange for a lump sum payment should the life insured pass away.

ProsCons
You know exactly how much money your beneficiaries will receive and can plan your funeral accordingly. To keep up with the cost of living, benefit indexation may be applied, which you could opt out of if premiums become too expensive.Generally, funeral insurance will not cover death due to natural causes within the first 12 months of your policy commencing, depending on your provider.
After your application has been accepted, you are covered right away for the full amount if death occurs due to an accident.Death caused by self-inflicted injury or suicide is usually not covered during the first 12 months of your policy.
Many insurers offer a premium cap benefit, which means that once you’ve covered the cost of the sum insured, you won’t have to pay any more premiums.In certain circumstances, the amount your pay in premiums may be more than the total benefit payable. It’s important that you choose a provider offering capped premiums.
No medical tests or questions are required, which makes the application process fast and easy. Acceptance is guaranteed if you satisfy the age and residency eligibility requirements and there are also no upfront costs you need to pay.If you decided to pay in instalments and die before the bond is paid in full, you’d only receive what you’ve paid up until that point, including any money earned (if any) on the investment. Thus, your family might have to make up the difference to cover your funeral expenses.
Payments are usually paid within 48 – 72 hours of receiving a claim with valid proof of death, regardless of how long you’ve held the policy.Stepped premiums increase with your age and can become unaffordable if you are on a fixed age pension or annuity which may lead to you reducing or cancelling your policy as you get older.
Some insurers offer you a choice of premium structures to help with affordability – stepped premiums that start off cheaper but increase each year or level premiums that start more expensive but stay more or less the same as you age.It can sometimes take a while for your beneficiaries to receive the payment if you can’t get the proof of death on a timely basis which can delay the payment.
Select insurers would refund all of your premiums if death were due to natural causes within the first 12 months of your policy commencing.There is a limit to the amount of cover you can take out with any insurer which is generally $15,000. However, you can take out multiple policies with different companies.
After signing the contract, you’ll usually have a 14 – 30 day cooling off period in which you can decide to cancel without any financial implications.If for some reason you stop paying your premiums or cancel, you’ll lose all the premiums you’ve paid up until that point.
You usually have flexibility regarding how you pay your premiums, with a choice between monthly, fortnightly or yearly.

Is funeral insurance a good idea?

Funeral insurance is a good idea if you’re unsure that you’ll have money put away at the end of your life to pay for your final expenses. Even if you do have enough funds available, your family might not be able to access it straight away. Having appropriate coverage ensures money will be made available to your family.

Is funeral insurance worth it?

Funeral insurance can be worthwhile if you choose a newer type policy that has a level premium style, capped premiums and refunds premiums paid if you die from natural causes within the 12 months accidental death period. Each person’s situation is unique therefore consider funeral insurance policies that meet your needs.

Frequently asked questions and answers

  • How long will my funeral insurance cover last for?

    Your funeral policy would usually come to an end when you die or on your 99th birthday. Your policy will also cease if you were to cancel or have failed to keep up with regular premium payments.
  • Can I buy funeral insurance for my parents?

    Yes, you can get funeral insurance for your parents by taking out a separate policy for them as long as they are within the entry age limits of the policy.
  • How can my beneficiary lodge a claim?

    To claim a benefit your beneficiary(s) will first need to contact your insurer and request the relevant claim forms. After that they will generally be required to produce:
    • A death certificate of the deceased person or evidence from a registered medical practitioner that death has occurred.
    • Your original policy document.
    • The fully completed claim form.
    • Certified Identification of the beneficiary and the life insured

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