Funeral insurance

Cover for your funeral

Funeral insurance may give you peace of mind but over time the premiums may cost you more than the funeral itself. Here are a few things to consider before signing up for funeral insurance.

What is funeral insurance?

Funeral insurance is a policy that will give your family a lump sum payment to help pay for funeral and associated expenses when you die.

How does funeral insurance work?

You pay monthly or fortnightly premiums (ongoing payments) for a fixed amount of cover. Usually you can choose between $5,000 to $15,000 cover which will be paid to your beneficiary when you die.

Smart tip

Not all funeral insurance plans are the same. Some plans will let you stop paying your premiums once you have reached the amount you need for your funeral. Shop around for and compare funeral insurance quotes before you sign up.

With funeral insurance, you are not saving for funeral costs but buying insurance to meet those costs at some future date.

Unlike taking out insurance for a car accident which is an unknown event, we all know that we will die sometime. Because you don't know when you are going to die, you need to think about whether you can afford to pay premiums for funeral insurance for the next 10, 20 or more years.

Funeral insurance premiums increase over time

Not only will you need to keep making payments over the years, but premiums are usually 'stepped' which means they increase with age and grow over time.

Funeral insurance premiums tend to rise steeply for people over 50 and this can cause people to cancel their policy in the first few years, losing the benefit of premiums already paid.

If the premium payments become unaffordable and you stop paying them, your policy is likely to be cancelled. You will not get back the money that you have paid towards your policy. Different insurers have different rules, so read the PDS carefully before you sign up.

Read ASIC's media release on their 2015 funeral insurance report that shows how sharply premiums rise for people over 50 and the types of funeral policies that have high cancellation rates.

What to consider before you buy funeral insurance

Before you buy funeral insurance you need to check if it is worth the money:

  • Weighing up costs and other options - Will you be paying more for the insurance than the funeral will actually cost? Have you considered other options you might have for paying for a funeral?
  • Keeping up with premium increases - When your premiums increase, will you be able to keep paying them?

Think long term and remember, if you can't keep up with the payments you are likely to lose all the money you have paid towards the insurance.

How fast will your insurance premium rise?

Your insurance premiums will go up over time. The PDS will tell you if your cover will increase by the Consumer Price Index (CPI) or by a predetermined amount - which means your premium will rise to cover the larger amount of cover.

If you don't want your cover to increase you can usually opt out of this, but you must contact your funeral insurance provider. Always check the PDS for these details.

Case study: Alice gets funeral insurance

Alice looks at a computer and she is wants to purchase funeral insurance online

Alice was 58 and still working when she took out funeral insurance costing $20 per fortnight. She wanted funeral cover so her family did not have to worry about paying for her funeral.

By the time Alice was 71, her premium had doubled and cost her more than $40 per fortnight. It had gone up every year as she aged and to cover inflation.

She struggled to pay the higher premium on her much lower, post-retirement income. She also knew it would continue to go up each year.

Alice added up all the premiums she had paid over the last 13 years and worked out that they had cost her more than $10,000.

What is 'Expenses only' funeral insurance

'Expenses only' funeral insurance means your family only get a payout for the actual cost of your funeral. Like other funeral insurance, you still make regular payments that will increase over time.

These types of funeral plans:

  • Only cover funeral expenses - You may need to prove the funeral costs with receipt.
  • Can be sold door-to-door - Don't sign up on the spot if someone is selling you this product at your door. Take the brochures and have a think about it.
  • Offer you less protection - Laws that protect consumers and their money when buying funeral insurance may not apply to 'expenses only' plans.
  • Offer you less coverage - Exclusions may apply.

Should you buy funeral insurance?

There are pros and cons to buying funeral insurance. Here are some key facts to help you decide if it's right for you.

Pros

  • Immediate cover with exclusions - You can get cover from day one but most policies only cover accidental death in the first year or two.
  • Helps people who struggle to save - It may suit you if you aren't sure if you can save for funeral costs.

Cons

  • Increasing premiums - Premiums generally go up over time. This means what starts out as a cheap way to pay funeral costs can become very expensive, especially if you are living on a fixed income.
  • No refund on premiums you've paid - If you can't afford to keep up the premiums or want to cancel your policy, you probably won't get back the premiums you have paid.
  • Your premiums could cost you more than your funeral - If you live another 5 to 10 years you may end up paying more in premiums that the cost of the funeral. Visit the My Longevity website to work out your life expectancy.
  • Exlcusions apply in the first few years - As most insurers only cover accidental death in the first 2 years, if you die from a terminal illness in this time you may not be covered. Check the policy's terms and conditions.
  • You don't get the money right away - Sometimes it can take a while for your family to receive the insurance payout to cover funeral costs.

Other ways to cover funeral costs

If you want to make things easier for your family by paying for your funeral in advance, there are other ways to do this. You could think about getting a pre-paid funeral, a funeral bond, using your superannuation or even saving up for your funeral in a separate high interest savings account. See paying for your funeral for more information on all your options.

If you decide funeral insurance is right for you, shop around and get a few funeral insurance quotes. Then you'll be able to get the best value for money as policies differ between insurers. Make sure you feel comfortable paying the rising premiums over time.


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Last updated: 25 May 2017