Funeral insurance, prepaid funerals, bonds and savings, compared
A prepaid funeral pays now, at today’s prices, for a funeral you choose with a funeral director. A funeral bond or a savings account sets money aside for one, and funeral insurance pays your family a fixed lump sum when you die, in return for premiums you keep paying until then. Moneysmart warns that funeral insurance can cost a lot more than the benefit your family receives, and that if you stop paying, you lose what you have already paid.
Please note This is general information, not financial advice. The government’s own guide is ASIC Moneysmart’s Paying for your funeral, and a free financial counsellor can talk through your situation through the National Debt Helpline.
The four side by side
Everything in this table comes from Moneysmart’s pages on paying for your funeral and funeral insurance, and its guide for First Nations families.
| Option | What you pay for | What your family gets | What to watch |
|---|---|---|---|
| Savings | Nothing is bought. You put money aside in an everyday account, a savings account or a term deposit. | The money in the account. | Tell your family about the account. Moneysmart also suggests talking to your bank about why you want it, so your family can reach the money. |
| Funeral bond | A deposit, then regular payments. The money can earn interest. | Money for your funeral. Many bonds let you choose a funeral director, or your family can choose one. | It can only be used for your funeral and can’t be withdrawn early. Bonds may not be advertised, so you may need to ask. Read the product disclosure statement and check the fees. |
| Prepaid funeral | The funeral you choose, with a funeral director, at today’s prices. Pay in full, or a deposit and regular payments. | The funeral as agreed. | Ask for a full list of costs. Check whether the plan can move with you interstate, and whether you can get a refund if you change your mind. |
| Funeral insurance | Monthly or fortnightly premiums for a fixed amount of cover, usually $5,000 to $15,000. | A lump sum after you die, which can take a while to arrive. | Premiums go up after you turn 50 and every year with inflation. Most policies cover only accidental death in the first few years. Cancel, or stop paying, and you probably lose what you have paid. |
Paying now, at today’s prices
Moneysmart says prepaid plans can cost less than funeral insurance or funeral bonds, because they use today’s prices and the cost doesn’t rise over time. Funeral directors offer different packages, so it suggests shopping around and asking for a full list of what you are paying for.
Some plans cover only part of a funeral. The NSW Government notes that some funeral directors limit prepaid schemes to the things they control, such as their own services and the coffin, which might not include the burial or cremation. A grave plot, a wall niche or a place in a memorial garden can usually be paid for directly with a cemetery or crematorium.
Where the money is held
The protection around prepaid money depends on the state. Moneysmart says funeral directors in New South Wales, Queensland, South Australia, Victoria and Tasmania must put your money into a registered funeral fund, which helps protect you if the funeral director goes out of business. The ACT, the Northern Territory and Western Australia offer fewer protections. Three states spell out more on their own pages:
- New South WalesThe business must transfer the money to a fund registered with NSW Fair Trading within 10 days, and funeral directors must give a 30-day cooling-off period on a prepaid funeral contract.
- VictoriaBefore you sign, the provider must tell you in writing where and how your money will be invested and what fees apply. Everything except administration or brokerage fees and GST must be invested, unless it is being paid to cemetery trustees, and you must be given receipts.
- QueenslandThe agreement must be in writing with a client care statement, given to you before you sign, that sets out the services, fees and charges and a 30-day cooling-off period.
Setting money aside: savings and bonds
Saving is what Moneysmart calls the simplest way. A funeral bond is a more formal version: Moneysmart’s guide for First Nations families explains that bonds are offered by friendly societies or life insurance companies, the money is invested, and it normally can’t be reached before the funeral. Moneysmart adds that you can buy a bond from a funeral director, a friendly society or a life insurer.
Centrelink and the assets test
Services Australia says funeral costs you pay for in advance normally don’t count in its assets test, with some exceptions, and its funeral bonds and prepaid funerals page explains how this works for each payment. The NSW Government adds that only prepaid funerals that have been fully paid for are exempt. If you receive a payment, check your own payment’s page or ask Services Australia before you decide.
Funeral insurance, in particular
Moneysmart is plain about it: with funeral insurance you are not saving for funeral costs, you are buying insurance to meet them at some future date. Because you keep paying until you die, it suggests thinking about three things before you sign:
- how much you will pay over the next 10, 20 or more years, which could add up to much more than the funeral costs;
- your future income, since premiums can be hard to afford on the Age Pension;
- whether you can afford higher premiums, which go up after you turn 50 and every year with inflation.
It also cautions against “expenses only” funeral cover, where your family may need receipts to prove the funeral costs before a claim is paid, with less legal protection and many exclusions. The arithmetic of premiums is set out on its own page: how funeral insurance premiums work.
Since 1 April 2020, businesses that sell funeral expenses facilities have generally needed an Australian financial services licence, after the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry recommended removing the old exemption.
Moneysmart’s guide for First Nations families adds a plain warning: don’t feel pressured into buying funeral cover, including by people who come to your house, and take your time to think it over.
Money that may already be there
Moneysmart says your family may be able to use part of your super to help pay for your funeral, though they usually need to lodge a death benefit claim with the fund first, so they may have to pay upfront and be repaid later. Some super funds include life insurance, and Services Australia suggests checking whether yours does and asking the fund who it will pay when you die.
Whatever you choose, Services Australia suggests telling your family, or the executor of your will, about your funeral plan and how to reach the money.