A Guide to Funeral Insurance

Death is not something we like to think about but a little pre-planning can save your grieving family members additional financial stress when you pass away.

Funeral insurance covers the cost of your funeral so your family or friends don't have to but it's not quite as straightforward as you might think.

There are a lot of policies that don't provide value for money.

So should you take out life insurance or specific funeral cover? And what's good value?

Our guide takes you through the ins and outs of funeral insurance.

What is funeral insurance and why would I need it?

It's not the most pleasant piece of life planning you'll ever do, but funerals cost money.

The average cost of a basic funeral is anywhere between $4,000 to $7,500*, although costs can be much higher depending on what your final instructions are.

As its name suggests, funeral insurance (sometimes known as burial insurance) is a very specific type of insurance that covers the cost of your funeral, generally up to $15,000.

A beneficiary -- usually your kids or partner -- will get a lump sum to cover the costs of your burial service when you pass away.

But this isn't the only way you can cover the cost of your funeral.

Many life insurance policies will come with some form of funeral cover.

We'll explain why life policies tend to be better value for money as we go through this guide.

At this stage we want to be clear and transparent.

You're probably here because you're researching funeral insurance.

At Compare Club, we don't compare standalone funeral policies but we do compare different types of life insurance from a panel of insurers.

If you want to make sure your funeral expenses are covered then speak to one of our specialists and they can find the right policy at an affordable cost.

What's the difference between funeral insurance and life insurance?

There's substantial differences between life insurance and funeral insurance.

Both will pay out a lump some when you die, but that's the only main similarity. Now, here's the differences.

*A quick note at this stage. When we're talking about life insurance in this context, we're talking about a type of insurance called term cover that we compare at Compare Club.

This is a type of insurance that pays money to your named beneficiaries when you die.

There's other types of cover we also offer such as trauma cover, total and permanent disability (TDP) and income protection.

Click on any of the links to find out more about these.

How does funeral cover work?

Funeral insurance means the policy you take out can only be used to pay for costs directly associated with your funeral.

This could include expenses such as burial, cremation, clergy or celebrant fees, a casket or urn, cars or other funeral transport, and flower arrangements.

Most funeral insurance payouts tend to cap out at around $15,000.

Most funeral insurers won't let you take out a policy after the age of 79, although you'll usually have to pay premiums until you're 90, after which it's free.

You're only covered for accidental death in the first 12 months.

You have the option of taking out funeral insurance at a fixed cost or allowing your premiums to increase each year (known as levelled and stepped premiums).

The cost of your premiums will depend on the sum you're insured for.

If you can't pay your premiums or you cancel your policy, you lose your benefits.

That is to say, you'll no longer be covered for the cost of your funeral.

And no, you can't get your money back.

Finally, there's no medical exam when you take out the policy, although there may be a number of exclusions in your policy -- always check these.

How does life insurance work?

We'll cover the difference between life insurance and funeral insurance in this section.

We won't go into the full ins and outs of life cover. If you're considering life cover, our guide to life insurance is the best place to start researching.

Life insurance, like funeral insurance, pays a lump sum to your loved ones.

If you've also got a form of funeral cover in your life policy, some of that money will be released in advance to help with your funeral costs and your beneficiaries will get the rest of the balance afterwards.

Life insurers tend to set a maximum cut-off age to purchase cover of anywhere between 60-75 and you'll need to take a medical exam so insurers can assess your health.

You can choose stepped premiums, linked to your age, or levelled premiums, where the cost is partially fixed.

The main difference between funeral insurance and life insurance is the cost.

It's not uncommon for policy holders to end up paying more than the overall cost of the funeral. More on that shortly.

Do life insurance policies cover funeral costs?

Yes. Many life insurance policies will have a form of funeral cover known as funeral advancement.

As with funeral insurance, funeral advancement benefits tend to be paid as a lump sum to your beneficiaries to cover your funeral costs when you die.

The funeral advancement will come out of your overall lump sum payment and will typically be released before the rest of the money, which can help with cash flow at a stressful time for your loved ones.

What's better: funeral insurance or life insurance?

If you've come this far, take a deep breath. A lot of funeral insurance policies can offer exceptionally bad value for money.

The below is a direct quote from the federal government's own MoneySmart website:

"Funeral insurance can cost you a lot more than the benefit your family will receive. And if you stop making repayments, you lose what you've already paid."

The biggest risk with funeral insurance is that you'll end up paying more than the cost of your funeral.

Not to put too fine a point on it, but the longer you live, the more likely your funeral cover will be costing you money.

If you take out a funeral policy when you're in your 50s and you're still alive into your late 70s or 80s then you could be paying thousands of dollars more than the cost of your funeral.

Funeral premiums may have risen during this time, due to inflation, so your monthly premiums could go up.

And if you cancel your policy then you'll lose the money you've already put into your policy. It's not a great deal.

A good life insurance policy with funeral advancement will cover a lot more than the cost of your funeral and offers better value for money in the long-term.

Again, we'll use somebody else's words here. Consumer organisation CHOICE says:

"We think the best alternative [to funeral insurance] is life insurance. Life insurance can be taken out as a stand-alone policy.... The cover amount covers your dependents as well as your funeral costs."

If you're interested in life cover with funeral advancement, you can speak to one of our specialists at Compare Club today.

Are there any benefits of having funeral insurance?

There are some circumstances where funeral insurance may be an option.

This is usually if you can't find an insurer who is willing to offer you life cover and you don't have any savings to cover your funeral expenses.

A word of caution here.

If you are looking at a standalone funeral policy, make sure you look at the exclusions carefully, and be aware you're unlikely to be covered for anything other than accidental death in the first 12 months, or even longer.

What are the alternatives to funeral insurance?

If you're determined to get a form of funeral cover, start by comparing life insurance and ask for it to include funeral advancement.

That way, your loved ones will have peace of mind that they'll have the cash to cover any funeral expenses.

The other option -- if you really don't want life insurance -- is to look at a pre-paid funeral plan.

Look, our speciality is finding great value life cover for Australians rather than pre-paid funerals, so we'd suggest going to the government's MoneySmart site if you want more information. We'll still be here if you do decide you want life cover though.

How can I reduce my funeral insurance premiums?

We don't compare or switch funeral insurance policies, so if you've already taken out a funeral policy, you'll need to speak directly with your insurer.

Where we can help is if you have an existing life insurance policy. Our specialists will look across our panel of insurers for a better deal.

We love saving Australians money, so we'll try and find a cheaper alternative that offers you better benefits.

It's simple to get started.

Just click the button below and one of our expert team will be in touch to save you money.

Source

*MoneySmart, Paying For Your Funeral, October 2020

Matthew Lang is the general manager of life insurance at Compare Club. Matthew leads a team of dedicated professionals who are passionate about helping individuals and families make informed decisions about their life insurance needs. Whether it's finding the right coverage for your specific circumstances, comparing policies, or optimizing your existing policy, Matthew and his team are here to provide expert guidance and support.

Meet our life insurance expert, Matthew Lang

Matthew's top life insurance tips

• 1

  Identify what you want out of life insurance before you buy. Knowing the purpose of your life cover will help you choose a policy that meets your needs.

• 2

  It's easy to assume that the sole purpose of life cover is to leave money behind for your family, but there's more to it than that.

• 3

  Life insurers like those on our panel pay an average of 97% of claims in full.

• 4

  There are different types of life insurance, including term life insurance, income protection, trauma cover and total and permanent disability cover.