Life Insurance vs. Funeral Insurance

It’s impossible to predict the future, but it is possible to plan ahead by choosing an insurance policy that’s best suited to you and your family should you suddenly pass away.

When comparing life insurance vs funeral insurance the costs and benefits should be closely examined. Both provide a lump-sum benefit, although funeral cover provides a smaller amount. The main difference is that life insurance provides your dependents with long-term financial security, while funeral insurance takes care of the short-term burial expenses.

We’ll help you find the better value between the two.

Which is best: a funeral plan or life insurance policy?

When determining if a funeral plan or life insurance policy is best suited to you and your family’s needs, it’s important to review the advantages and disadvantages of both, paying special attention to the cost versus benefits. Take note that a life insurance policy is underwritten, which means your health is a factor, while funeral insurance provides guaranteed acceptance.

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This article will outline the primary differences between the two policies, focusing on benefits and limitations.

What is the difference between life insurance and funeral cover?

Life Insurance: Its purpose is to ensure there’s enough money to settle all outstanding debts while continuing to provide for your family’s financial needs. Once your claim has been processed, your beneficiaries will receive a pay-out either as a lump sum or as a monthly amount as offered by Onepath with their Onecare policy for example.

Funeral Insurance: Its sole purpose is to pay for your final expenses, which usually includes the casket or urn, flowers, transport and catering. Your nominated beneficiary will receive a lump-sum payout usually upon the insurer receiving a valid and complete claim, along with the death certificate.

Does life insurance cover funeral expenses?

Yes, life insurance does cover funeral expenses with a built-in feature called ‘funeral advancement’, which will generally pay your beneficiaries 10% of your insured benefit, up to $25,000 depending on your insurer. The funeral advancement benefit typically pays out within 10 to 14 days upon receipt of a valid death certificate and claim forms.

Let’s take a closer look by comparing funeral cover with life insurance.

Funeral insurance vs Life Insurance

Policy Information Funeral Insurance Life Insurance
What is covered? Only covers you for death. Generally, only accidental death is covered for the first 12 months of your policy commencing. Covers you for all death, excluding suicide in the first 13 months.
Built-in features available Select providers offer built-in benefits, like additional payments for death by accidents, multi policy discounts or built in benefit indexation. Built-in features range from Terminal illness, Interim cover, Benefit Indexation, Future Insurability and financial advice reimbursement. Select companies also offer Premium Freeze and Suspending Cover options.
How soon does it pay out? Pays out quickly, within 3 to 7 days, when a valid claim is made. Funeral advancement pays out fairly quickly after receipt of claim forms and valid death certificate. The full insurance benefit will take longer, depending on the circumstances of death.
What is the max cover amount? $15,000 depending on your insurer. There is generally no limit.
How are premiums calculated? Generally more expensive due to no underwriting. Depending on the insurer you’ll have a choice between Stepped and Level premiums. Premiums are based on your age, health, medical history and smoker status and your cover amount. You’ll usually have the option between Level, Stepped and Hybrid premiums.
Are premiums capped? This is dependent on the insurer, but yes capped premiums are available to ensure you never pay more in premiums than the cover amount. Capped premiums are not available.
Who is usually covered? The individual or couple. Select companies may cover the entire family. Life policies are more focused on the individual policy member. However, most insurers will provide you with the opportunity to add your spouse and children.
How easy is it to take out a policy? Very easy if you meet the age and residency eligibility. These policies offer guaranteed acceptance. Therefore, no medicals or medical questions are required. Cover is not guaranteed. Acceptance is usually based on your risk profile, which looks at your age, health and medical history.

Case Study: Life insurance vs funeral insurance

Let’s assume you’re a healthy, 40-year-old male wanting to take out a policy that will cover your funeral expenses. In this scenario, you’ve opted to select a Stepped premium style because of its short-term affordability.

If you were to purchase a funeral policy, you would pay $35.40 per month for $15,000 worth of cover. On the other hand, if you chose a life insurance policy you’ll pay a monthly premium of $34.57, but receive $250,000 worth of cover on a level premium.

Take note: the above case study is based on a non-smoking male living in Queensland with no pre-existing medical conditions.

It’s important that you review your coverage every few years, to ensure that it remains relevant and provides you value for money, especially when you’ve gotten married, divorced, become a parent or moved into retirement.

If you’re still unsure which option is best for your particular circumstances or would like to consider other ways to cover your funeral costs or if you have any specific questions for the team, please ask them below.

All the funeral insurance policies compared by us offer capped premiums. Make sure you have the best cover available.

Published: August 30, 2017
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Ask an Expert?


  • samuel knight |

    I have a life insurance policy to pay 1800 dollar cremation bill, I pay 40 dollars a month. I have been paying for 5 yrs which equals approx 2400 dollars. The policy period is 10 yrs which equal 4800 dollars for an 1800 dollar bill. Can you explain this, it does not seem fair

      Anneke |

      Hi Samuel,
      Because I’m not aware of your personal circumstances and the specifics of your policy I cannot provide you with a clear explanation. Please give us a call on 1300 135 205 so a specialist may assist you with your query.

      Please note; a term life insurance policy in Australia generally has a minimum sum insured of $50,000 to $100,000, which makes me wonder if you do not have a funeral policy instead. Give us a call any time.

  • Rebecca |

    Should I get life insurance or a funeral plan ? I’m 62 years and on a basic wage salary. Thank you

      Anneke |

      Hi Rebecca. Happy New Year.

      Whether a life insurance policy or funeral insurance plan is best suited to you, depends on your specific requirements, for example, do you have any financial dependents, outstanding debts, a mortgage to pay etc.

      Please give us a call on 1300 135 205 and an insurance specialist will help you find a policy suited to your requirements.