Prepaid Funeral vs Funeral Insurance

It’s a common saying that there’s only one certainty in life, and that – rather morbidly – is death. And when it comes to our own death, most of us want to assist our loved ones to deal with this certainty by removing the burden of our funeral expenses from them. There are a number of alternatives to doing this, but the most common approaches for those that don’t expect to have liquid funds available are to either prepay your funeral or to take out funeral insurance. So to help you decide which of these may be the better alternative, we’re going to look at the difference between prepaid funerals and funeral insurance.

Prepaid funerals

A prepaid funeral is when you plan and purchase your funeral in advance. You sit down with a Funeral Director and plan the type of funeral you want, from the flowers to the casket, and then pay for that funeral at today’s prices. All the details are documented in a written contract including the terms of payment, which may be made upfront as a lump sum or in instalments. The money you pay is then invested with an independently managed funeral fund, only to be released when it is needed.

Pros:

  • You have complete control over all the details of your funeral.
  • Costs are fixed in today’s currency and won’t go up at a later date.
  • Your funeral payment is securely invested with an independent entity, so even if your Funeral Director goes out of business or you move interstate, the funds can be transferred to another Funeral Director.
  • If you die and your funeral takes place interstate or overseas, the funds you’ve paid will go to your estate. Excess funds not spent will also generally go to your estate.

Cons:

  • Pre–paying your funeral means a lot of details need to be determined, which makes it a very involved and detailed process, all of which comes together in a legally binding contract.
  • Prepaid funerals can be rather expensive upfront. Even if you don’t pay the whole amount as a lump sum, you’ll have to pay a deposit before you can start smaller regular instalments.
  • Under the terms of your contract, no refunds can be issued after the initial cooling off period.
For more information, contact your state’s Fair Trading Office:

Funeral insurance

Another option is funeral insurance, also known as final expenses insurance. As with other types of insurance policies, you pay a regular premium in exchange for a fixed amount of cover to be paid at the event of your death. This amount is paid to the beneficiaries named in your policy to cover the cost of your funeral. Unlike a prepaid funeral, you are not paying for your funeral itself. Instead you are buying insurance to cover those costs at a future time.

Pros:

  • In terms of taking out cover, funeral insurance is easy to set up. The application process is easy, acceptance guaranteed if you satisfy the eligibility requirements and there’s no need for an immediate lump sum to be paid to commence cover.
  • The benefit amount is paid regardless of how long you have held your policy, subject to a 12 month waiting period where death is other than by accident. Accidental death is covered from day one and usually results in a higher claimable amount.
  • Some policies offer different premium structures to help with budgeting – fixed or age based. Read more about funeral insurance on our post about fixed premiums vs age–based policies
  • Flexibility of use of the funds. Because the funds are paid to one or more beneficiaries, the funds can be used for any form of expense that is necessary at the time. This may include costs directly associated with the funeral, but it may also include costs associated with administering your final affairs such as finalising credit card debts.

Cons:

  • There is a chance, depending on how long you live, that you may end up paying more for your insurance policy than the cost of your funeral. Usually this will only occur after holding your policy for a significant number of years.
  • If at any point you stop paying your premium for a period of time, your policy is cancelled and there will be no refund of premiums paid to date.
  • Premiums will generally increase over time as you age, unless you choose a policy that has a fixed premium. However fixed premium policies generally start at a higher price.
If you decide that funeral insurance is right for you, contact Choosi on 13 55 55. 
 

These articles are provided as reference material to allow more informed decision making, but are not intended as being a complete source of information on any topic. All readers should make their own independent analysis on the topic to make sure they have considered the aspects that are important to them.