We get that it's not the cheeriest topic on the block, but covering the cost of your departure from the earth is worth some research.
Like the name suggests, funeral insurance is designed to cover the cost of your funeral. No health check is needed to take out a policy. In 2014, there were about 440,000 funeral insurance policies with an average sum insured of $8859. Sounds easy enough, but we found:
- You can end up paying more in premiums than the value of the funeral cover.
- Premiums can rise sharply when you get older and it may be hard to afford them especially if you are on a fixed income.
- If you stop paying your premium, you'll no longer be covered and in most cases won't receive a refund. In 2014, 16.5% of policies were cancelled, one in three of those by the insurer because of non-payment of premiums.
- Pre-paid funerals, funeral bonds and life insurance or a simple savings account are often a better choice.
So what are all the options?
If you go down this route you'll usually make a regular contribution until age 90, after which time cover continues for free. The benefit amount is either fixed or increases over time, and for the first couple of years you're usually only covered for accidental death. An age limit of between 18 and 79 years normally applies – the older you are, the higher the premium.
Risks of funeral insurance
- Premiums can be fixed or increase each year, and can vary according to your gender and whether or not you smoke.
- If premiums are not fixed you often won't know how much they increase in subsequent years.
- Premiums can add up to more than four times the cost of a funeral.
A call for reforms to funeral insurance
In 2013, CHOICE joined 10 other consumer and pensioner advocacy groups, including the Consumer Action Law Centre (CALC), in calling for reforms to funeral insurance in Australia.
In response to this, Hollard Insurance released their "Guaranteed Funeral Insurance" product, which promises that:
- premiums will never increase
- premiums will actually reduce by five percent after every continuous five years of the policy
- the total premiums paid will never be more than the benefit paid – that is, they will pay the higher of the benefit amount or the total premiums paid since product was taken out.
"It's positive that there's now a funeral insurance product with improved terms," says Matt Levey, CHOICE director of campaigns and communications. "But our advice is still that consumers look at options that can be more affordable and can give them better value for their money such as life insurance, pre-paid funerals or simply using a separate savings account."
The pre-paid option is a better choice, and covers all or part of your funeral, usually at today's prices. The services you pay for are covered when you die, regardless of how much they cost at the time. However, they can be inflexible in case you move interstate to be with family, make sure there is the option to transfer it to another service.
There are a few ways to fund pre-paid funerals.
- Small contributory funds: You make small, regular payments for part or all of a funeral service with a particular funeral director. Conditions vary between funds.
- Pre-purchased products: You pay for a cemetery plot, wall niche or place in a memorial garden, usually directly from the cemetery or crematorium.
- Pre-paid funeral plans: You choose the type of funeral you'd like and pay for it in full. Or make a deposit and pay installments over a fixed period. Few plans offer a refund if you cancel – check this before committing.
Some states require registration of pre-paid funerals – check with the Fair Trading office in your state for more information
What is Funeral Insurance?
Your funeral is your farewell to life, family and friends so of course you want it to be a special occasion but not a financial burden for loved ones.
According to a 2018 Finder.com.au survey, the average cost of a funeral in Australia is $7,449. And ASIC’s MoneySmart website says funerals can cost anywhere from $4,000 for something simple to $15,000 for something fancier. Costs are estimates only and vary depending on state, and the services and features chosen.
Many people do not have that kind of money readily available to pay the funeral expenses. This is where Funeral Insurance comes in.
With Funeral Insurance, you pay a regular premium into your funeral policy. When you die your family gets a lump sum, usually paid within 24 hours of receiving the completed claim.
This money can be used to cover:
The funeral director’s fee
Fee for the chapel (if you use one) and the venue for the wake
Cemetery plot and headstone or cremation and urn
Catering for the wake
How does our Funeral Insurance work?
It’s simple and straightforward:
Work out how much money is needed for your funeral. Get an approximate idea of funeral costs then ring around for quotes
When the time comes, we ensure a fast, smooth payout so your family can pay upfront for your funeral expenses.
Plenty of folks use life insurance as a means to cover funeral expenses. In fact, 84% of life insurance policyholders cite final expenses as a reason for buying life insurance, according to the 2020 Life Insurance Barometer report from industry-funded groups LIMRA and Life Happens.
Burial insurance is a type of life insurance designed specifically for final expenses. It’s sometimes called funeral insurance or final expense insurance.
Burial insurance is simply a whole life insurance policy that’s sold only in small amounts, such as $5,000 to $25,000. These policies aren’t meant for people who are raising families and who need life insurance to cover bigger obligations like a mortgage, kids’ college tuition and income replacement during their prime working years.
For many older consumers, paying for a funeral is the only reason to buy a life insurance policy. Burial insurance for seniors is often marketed to people who are on tight budgets and sometimes in poor health, and who don’t have savings or other life insurance that a family could use for funeral costs.
But burial insurance can be expensive and there may be better options for you.
How Does Burial Insurance Work?
Burial and funeral insurance policies generally do not require a medical exam, and the application may ask only a few health questions — or no questions at all. Rates are based primarily on age and gender. Burial insurance is typically one of these varieties of whole life insurance:
- Simplified issue life insurance: The application will have no medical exam and only a few health questions, but a “yes” answer to any of them could disqualify you. For example, simplified issue applications often ask if you’re currently living in a nursing home, or if you have HIV.
- Guaranteed issue life insurance: There are no health questions or a medical exam to apply for guaranteed issue life insurance. You can’t be turned down.
The downside to these easy applications is that the policy will usually have “graded death benefits.” If you pass away within two or three years after buying the policy, your beneficiaries will receive only a refund of the premiums you paid, plus some interest, or a small percentage of the policy’s coverage amount. However, accidental deaths are typically covered in full from the start of the policy, such as a death in a plane crash.
How Much Does an Average Funeral Cost?
The national median cost of a funeral with a viewing and burial cost $7,640 in 2019, according to the National Funeral Directors Association. That price does not include the cost of a vault, which is typically required by a cemetery. The median cost is $9,135 when a vault is included.
The national median cost for a cremation without a cremation casket and urn was $5,150. A cremation casket is generally required, which brings the total median cost to $6,645, including an urn.
Keep in mind, these figures do not include expenses such as a monument or marker, obituary or flowers.