How to cover the cost of your funeral

Don’t let your death lead to debt. The average funeral costs more than a good quality second-hand car; starting from $5,000 to up to $50,000, depending on the type of funeral you have planned. Have you given any thought to how your funeral will be paid?

Published June 6, 2017

Making funeral decisions now can spare your family the anxiety of borrowing and quickly scraping money together when you die. You have a number of options available to help your loved ones cover the cost of your funeral. We’ll describe each one and their respective pros and cons.

What is funeral cover?

Funeral cover or a funeral insurance ensures that a lump sum payment is made to your beneficiaries upon your death. This lump sum is intended to cover the cost of your funeral, including the coffin, your cremation or burial, and the service. Generally, while alive, you’ll pay premiums to provide peace of mind that your final expenses will be paid.

How much does a funeral cost?

The cost of a funeral varies depending on your funeral director’s professional fees, where you die and the location of your final resting place. Other expenses to consider:

Funerals often begin at $5,000, however, a simple cremation without a funeral service can cost as little as $2,600. Basic cremation services are estimated at $950, this includes the use of the chapel and certificates of cremation, but does not include conducting services.

Burials are more expensive. Labour costs are involved in opening and closing the grave and maintaining it. A single grave can cost from $2,970 to $4,800, plus an opening fee of $1,485.

Funeral cover for your family might not seem important today, but if you were to die tomorrow would your loved ones be able to cover all the costs?

7 ways to pay for your funeral

You have a variety of options available to you. You can cover the cost of your funeral by:

1. Buy funeral insurance

Many insurers offer insurance products specifically designed for covering funeral costs. You pay a regular premium for your chosen benefit amount (usually in the range of $5, 000 to $15000). The lump sum benefit then goes to your nominated beneficiary(s) when you pass away this money can then be used to cover the costs of your funeral or any other outstanding costs.

Who is eligible?

Depending on the insurer, age and residency restrictions may apply when taking out the policy. You generally have to be an Australian citizen and be between the ages of 18 and 69 (depending on the insurer).

Pros and cons of buying funeral insurance cover

You’ll receive immediate cover once your policy has been accepted, No medicals required.Most insurers will only cover you for accidental death for the first 12 months of you policy commencing.
You are covered worldwide 24/7 and for any type of death after the 12 – 24 month accidental death period.As there are no medical questions, premiums are higher dollar for dollar when compared to a life insurance policy.
Select insurers refund all premiums if you die due to natural causes within the first 12 months of your policy commencing.If you cancel your policy, you will most likely not receive any money back.
Most insurers will give you the option of choosing stepped or level premiums. Stepped premiums start more affordable, but increase every year. Level premiums are more expensive, but usually do not increase as you age.Many insurers only offer stepped premiums, meaning you will pay more in premiums with every passing year, which may lead to long-term unaffordability.
Select insurers offer capped premiums, meaning you’ll never pay more in premiums than the actual cost of your cover (Sum insured).Premiums may increase if your benefit increases each year to keep up with inflation (often you can opt out of these increases).

Funeral cover with no waiting period

Many insurers offer funeral cover with no waiting period, also known as the 12 to 24-month accidental death period when replacing like for like policies. Meaning, should you die by natural causes within weeks of your policy commencement date your claim will be paid. However, insurers generally require proof of the previous policy, which you might have to disclose when applying for the replacement policy.

2. Life insurance with built in Funeral advancement

Funeral advancement is generally a built-in feature with life insurance policies and will pay your beneficiaries an advanced benefit upon your death, which they can use to cover your funeral expenses.

Who is eligible?

You can generally apply for a life insurance policy if you are between 11 and 75 years old. You need to be in general good health, as your current health and medical history will be assessed before the insurer will accept your cover. However if the insurer considers you a higher risk due to poor health or lifestyle, you might pay more for your policy.

Pros and cons of life insurance with funeral advancement

Life insurance is less expensive than funeral cover plans.Generally, life insurance is underwritten, meaning it requires medical questions and or tests before acceptance, which can take longer.
A funeral advancement benefit typically pays out within 10 to 14 days upon receipt of a valid death certificate and claim forms.The full life insurance benefit will usually take longer to pay out depending on the circumstances of death.
Your loved ones will usually receive up to 10% of your insured benefit to a maximum of $25,000 depending on the insurer.Generally, premiums will increase with your age. Therefore your policy may become less affordable as you age or you may have to reduce your cover to keep premiums affordable.
The funeral advancement can potentially pay your beneficiaries 3 – 5 times as much as a funeral policy.Payment of the funeral advancement benefit does not imply your life insurance benefit will be paid.
Your overall policy sum insured can be as high as you like so long as you can financially justify the level of cover.Your life insurance benefit amount will be reduced by the funeral advancement amount when it is paid.

3. Funeral Bonds

Select insurance companies, and investment organisations offer investment bonds which can be used to save for your funeral. The money you put into the bond is invested on your behalf, and the accumulated interest / earnings contribute to the value of the bond. However, the money cannot be withdrawn early.

Who is eligible?

There are no age or health restrictions when taking out a funeral bond, other than being at least 16 years of age.

Pros and cons of funeral bonds

You choose the amount to be invested. By planning the details upfront, you have more control over your final demise.Like with any investment, there is no guarantee on a high return. The dividend could be less than you anticipated.
Choose to pay a lump sum upfront to cover the funeral expenses or ask to pay in regular instalments.The amount you choose might not be enough for the increasing rise in funeral costs. If the bond does not cover your funeral expenses, your family or the executor of your estate will have to make up the difference.
Won’t affect your pension. Funeral bonds of up to $5,000 is exempt from income or asset tests.If you pass away before paying all the instalments, your loved ones might need additional money to pay for your funeral cover.
You’ll usually be given a cooling off period of 14 days in which you can decide to cancel your bond.If you decide to cancel the bond after the initial 14 days, you are not guaranteed to receive any money back.
Most funeral bonds can be held in a single or joint application.The benefit can only be paid for a single funeral. If your bond is held by joint names, the surviving party has 30 days to decide to either continue with the bond or have the benefit payout.

4. Pre-paid funerals

You can prepay for your funeral by holding money in a trust established by a funeral home. A pre-paid funeral is a contractual agreement between your and a funeral director in which the funeral director guarantees to provide your predetermined funeral service in the future.

Who is eligible?

Regardless of your age or the state of your health, you can take out a pre-paid funeral plan.

Pros and cons of buying a pre-paid funeral

The type and style of funeral you want is documented in the written contract. You thus have more control over your final goodbye.A pre-paid funeral is paid for at today’s prices and might not cover what a funeral costs when you do pass away.
You generally have the option of paying for your pre-paid funeral in a lump sum or regular instalments over a fixed period.You might not receive any money back if you decide to cancel your pre-paid funeral plan.
If your chosen funeral director goes out of business, the money will still be available with another funeral director.Funeral directors may place a limit on the prepaid scheme. Make sure you know what services are included.
The money held in the trust is exempt from being seen as an asset when determining your eligibility for a pension.If you move interstate, there may be an issue moving your pre-paid funeral plan from one funeral director to another.
If you die interstate or overseas, your family might have to pay additional costs for transportation to bring your body back home.

5. Your Super Fund

Normally you won’t be able to access you superannuation funds until you reach preservation age. However, if you have any superannuation when you pass away, the remaining funds can be used to cover the cost of your funeral and will be paid to either your estate or nominated dependents. However, it will take some time before the funds will be released by the Trustee. Therefore you may need someone to cover the costs in the short term.

Who is eligible?

Usually, you cannot access your super fund before your reach your preservation age56 years and up to 60 years if you were born on or after 1 July 1960. However, to get your super released early you must meet the criteria for ‘compassionate grounds’. Paying for a funeral falls into this category.

Pros and cons of using your super fund to pay your funeral

You can generally use any remaining superannuation to cover the cost of your funeral.It may take a long time to pay out. There are very strict guidelines that your super fund has to follow. Your family might have to pay for your funeral and wait to be reimbursed later.
The superannuation benefit is generally paid tax-free when paid to a dependant.A ‘death tax’ will apply when money from your super fund is paid to individuals considered ‘non-dependents’ under the superannuation laws.

6. Savings

If none of the above options appeals to you, another way to cover the costs of your funeral is to set up a bank account that’s payable to your loved ones when you die. Make sure you have someone on the account with you or grant access to your Executor.

Pros and cons of using your savings as funeral cover

You can start saving immediately, and once you have enough to cover your funeral costs, you can let it sit and earn interest.Your money is subject to the rising and falling interest rates.
A fast and uncomplicated solution to gain access to funds for funeral expenses.During times of financial hardship, you might be tempted to dip into your funeral savings.
You have more control over your money and how much you want to spend on your funeral. Be sure to leave a Will stipulating how the funds must be used.You may not be able to save enough money in time for your funeral if you pass away sooner than that expected.
Your savings (deemed interest) will count towards your Age Pension Asset & Income test which may impact your pension payments.

7. Your family

As a last resort, you can live worry free hoping your family will take care of all your final expenses. We won’t go into the pros and cons of this option, as it should not be an option at all. Leaving your family to worry about the cost of your funeral is not okay.

Ways to reduce your funeral costs

There are a few ways you can bring down the cost of your funeral. The largest cost cutting technique would be to consider cremation, instead of burial. Of course, this will be dependent on personal preference and cultural concerns. Other ways to save on your funeral costs include:

Funeral cover for over 80 year olds

Obtaining funeral cover for over 80 year olds is very difficult to find. According to ASIC’s 2015 report, less than 5% of people over the age of 80 had funeral insurance to cover their funeral due to stepped premiums. They simply can’t afford it or are ineligible due to policy entry age restrictions, which lead them to instead opt for a pre-paid funeral plan and funeral bond.

Persons insured by age

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

Funeral cover for senior citizens

Finding affordable funeral cover for senior citizens is easier the younger you are. Therefore it’s best to start the planning process as soon as possible. As you get older, your options can become more restrictive but it’s not impossible. Here’s a quick overview.

Entry age for eligibilityFuneral InsuranceLife InsuranceFuneral BondsPre-paid funerals
50 to 59
60 to 69
70 to 75
(Depending on insurer)
76 to 79
(Depending on insurer)
80 years or older
BenefitsFuneral InsuranceLife InsuranceFuneral BondsPre-paid funerals
Quick payouts.
(Funeral Advancement Portion only)
Easy to buy.
Premiums are capped – you won’t pay more than the cover amount.
(Depending on insurer)
More control over planning your future funeral, e.g. choice of funeral director.
Keeps up with inflation to ensure the lump sum is enough to cover final expenses.
No medical examination.

We hope this article has helped you with planning to pay for your funeral. If you require any further assistance or have questions, please do not hesitate to contact us on 1300 135 205 and an insurance specialist will provide you with all the information you need.

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