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 help our loved ones to deal with this certainty by removing the cost of our funeral expenses from them. There are a number of ways to do this, but the most common for those that don’t have money available come the time, are to either prepay for your funeral or to take out funeral insurance. To help you decide which of these suit you, 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 after a deposit is made. The money you pay is then invested with an independently managed funeral fund, only to be released when it’s needed.

Pros:

• You have complete control over all the details of your funeral.
• Costs are fixed at today’s prices and won’t increase at a later date.
• No on-going payments once you’ve paid in full.
• Your funeral payment is secure 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:

• Prepaying 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.
• 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:

• NSW – Fair Trading
• ACT – Fair Trading
• Queensland – Fair Trading: Funerals
• South Australia – South Australian Government: Planning ahead for a funeral
• Tasmania – Consumer Affairs and Fair Trading
• Victoria – Consumer Affairs: Pre–paid funerals
• Northern Territory – Consumer Affairs

Funeral insurance

As with other types of insurance policies, with funeral insurance, 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’re not actually paying for the funeral itself. Instead you’re buying insurance to cover those costs at a future time.

For funeral insurance policies available through Choosi, the pros are:

• Funeral insurance is easy to set up. The application process is simple with no medicals or blood needed.
• Australian residents aged 40-79 are guaranteed acceptance.
• Cover available starts from $3,000 up to $15,000 and is payable to your family if you pass away or suffer a terminal illness.
• You’re covered for death from any cause as well as a diagnosis of a terminal illness after 12 months.
• You can use the funds for funeral costs but they can also be used towards settling your affairs such as paying down outstanding debts or meeting other financial obligations.

Cons:

• If at any point you stop paying your premium, your policy could be cancelled and there will be no refund of premiums paid to date.
• For the first 12 months of holding your policy, you’re only covered for accidental death and accidental serious injury. Accidental serious injury cover expires at 75 years of age.
• For a terminal illness diagnosis payout, you need to be diagnosed with less than 12 months to live after you have held your policy for 12 months.

Read more about funeral insurance. If you’re ready to start looking into funeral insurance, Choosi can help you compare policies from a range of trusted Australian funeral insurance brands.