Time to read : 5 Minutes
Talking funerals is one of those awkward – and maybe confronting – topics, particularly before the need for one.
But getting on the same page with a loved one, as well as formulating a plan to pay, can avoid a whole bunch of extra emotional and financial trauma when the time eventually comes.
So, let’s start with what many of us don’t know: just how much does a funeral cost?
How much can you expect a funeral to cost?
The government’s MoneySmart website says a funeral can set you – or someone – back between $6,000 and $18,000, depending on how basic or elaborate you want to go.
Meanwhile the cheerfully named 2023 Cost of Death Report by Australian Seniors said the average cost of a burial was $11,039 and cremations $8,045.
To break that down a little more, the cost categories include:
The casket: anything from mahogany to a cardboard box goes (yes, this has been done in Queensland).
Ceremony: from notifying people of the date then transporting your loved one, to floral decorating and officiating at the service itself, it all has to be paid for.
Burial plot or cremation spot: your choice of which and the decision between plaque, headstone or even vault make an enormous cost difference.
Wake: usually, this is a separate personal expense, but it’s still a cost.
It really is up to your family, and maybe expectations and traditions, how much money a funeral will cost.
And, of course, there are a range of products and options to meet it.
How a private, pre-pay funeral works
This is an arrangement you make with a specific funeral director. One of the advantages is your parents or loved ones can choose one they’re comfortable with, giving them peace of mind that their wishes will be taken care of when the time comes.
From a finances perspective, this option allows you to also select the service you want and lock it in at today’s prices.
Then, you essentially save to cover that cost – for example, set fortnightly deposits for five years.
The money is just held in ‘wait’ for when the funeral is needed.
But regulations designed to protect your money mean that those deposits are not held by the funeral provider itself but within a registered funeral fund. This guards against loss if the provider itself were to go bust.
Or at least that is the case in NSW, Queensland, South Australia and Victoria – but not in other areas. For this reason, the MoneySmart website advises people outside of these areas to consider a funeral bond instead…
How a funeral bond works
A funeral bond works a lot like a regular insurance bond. You make an initial deposit and usually periodic payments (just like a pre-pay funeral), and your ‘ínvestment’ grows over time.
The big thing that investment bonds have going for them – besides the potential for the money to increase – is their tax treatment. Within the bond, the tax is only 30% and then when it is ultimately paid out, the money is a “tax paid” investment.
Note: with this option it also means earnings don’t need to be included in a tax return.
It is also exempt from the assets and income test for the pension so it doesn’t impact that either.
But with this particular type of bond, the money is locked up until a funeral is necessary and cannot usually be accessed for any other reason.
There is also no guarantee there will be enough to cover the cost of the funeral – after all, those costs could escalate beyond the worth of the funeral bond, while you are saving.
However, you can incorporate the investment as part of a pre-paid funeral arrangement, above.
How funeral insurance works
Funeral insurance is like any other type of insurance but just for the designated purpose of covering your ceremonial and other costs.
You can take it out at any time from age, say, 40. Of course, the great unknown is how soon you will need it… which is the largest problem cost-wise: you may end up paying premiums for a long time.
And for this reason, funeral insurance is a risky investment. You can pay much more in premiums than what the funeral could cost without it.
Be aware: if you take a break in paying the premiums, the policy will be cancelled. And besides being a risky option, funeral insurance comes with exclusions. For example, suicide is rarely covered.
How funeral advancement works
Funeral advancement is different to funeral insurance in that you don’t take out the cover separately. Rather, it’s a part of life insurance.
It’s usually included in all retail life policies (inside or outside of super). The early release of part of the death benefit would help pay the immediate funeral costs. The beneficiary receives the payout to manage the costs.
So if you’re the beneficiary of a parent, you apply to the insurer when you need it but the assessment of the full claim typically takes longer.
How early access to super works
In certain situations, you may be able to access super early. This could include being diagnosed with a terminal illness or to pay funeral costs.
Be aware: accessing super to pay for funeral costs won’t come through quickly. But along with improving quality of life at the end, a terminal illness payout can contribute to or entirely cover the cost of the funeral expenses. For this option you apply through your super trustee.
Just keep in mind that if the death is unexpected or if for some other reason you haven’t been able to access super early, this money will not be there until after the funeral invoices are due.
Bottom line
For a family, funding a funeral fully – and sensitively – is fraught with difficulty, and even danger.
One big risk is that you will end up paying far more than the funeral costs, as is the case with funeral insurance.
On the flip side, you might not have saved enough. This could be the situation with pre-paying a funeral or taking out a funeral bond too late.
This is a possibility, too, if you self-insure – so squirrel money away yourself over time for a funeral. The discipline to do that, as well as the determination not to raid it, could also be problematic.
Whatever path you decide to take, a conversation with your parents or children now could save a whole lot of headache later.
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Financial disclaimer
The information contained on this web page is provided by Compare Club Australia Pty Ltd, authorised representative of Alternative Media AFSL number 486326. It is of general nature only and has been prepared without taking into consideration your objectives, needs and financial situation. You should consider whether the advice is right for you and refer to the Product Disclosure Statement before making a decision in relation to a financial product.
