Funeral Insurance

What is funeral insurance?

Funeral insurance is a type of policy designed to cover the cost of the policyholder’s funeral when they die. The idea is that the insurance will cover the cost of funeral expenses, up to the cover amount included under the policy, so that family and loved ones are not left  to pay the bill.

However, a funeral insurance policy may not cover all the expenses involved in organising a person’s funeral and burial or cremation. The benefit amount is typically capped at $15,000. There are other limits and exclusions you should know about too, and some of these are covered below.

How does funeral insurance work?

With funeral insurance, a person takes out a policy designed to cover the cost of their funeral when they die. The policyholder pays regular premiums and as long as the policy is still in place, the insurance provider will pay a lump sum benefit to the beneficiary of the policy to cover funeral costs. This lump sum benefit can typically range from around $3,000 to $15,000, depending on the policy. Some insurers allow policyholders to increase the cover amount above the maximum level of cover, once the policy is in place.

Depending on when the policyholder takes out their policy, they may end up paying more in premiums than the benefit that is payable under the policy, unless the policy offers premiums capped at the sum insured amount.

Some insurers allow policyholders to ‘cash out’ all or part of their policy when they reach a certain age, or they may stop charging premiums to customers who reach a certain age. These features, when available, can help limit the overall cost of funeral insurance, but may still not prevent a policyholder paying more in premiums than the benefit amount.

It’s also important to note that premiums on funeral insurance policies are generally non-refundable. This means if you cancel the policy or stop paying the premiums, you will likely lose any premiums you paid up until that point.

What does funeral insurance cover?

Funeral insurance is designed to cover the cost of the policyholder’s funeral when they die, up to the sum insured amount. Some of the main expenses that can arise when organising a funeral and burial or cremation can include:

• funeral director fees
• transport
• coffin
• death certificate
• permits (e.g. for a burial at sea or private land)
• burial or cremation
• cemetery plot
• other expenses such as a celebrant or clergy, flowers, newspaper notices and the wake

Source: moneysmart.gov.au

It may also be possible to receive a payout on a funeral insurance policy if you are diagnosed with a terminal illness, depending on the policy.

What is excluded from funeral insurance cover?

Like all forms of insurance, funeral insurance is subject to exclusions, meaning you may not be eligible to receive a payout on the policy in certain situations. Below we list some of the common exclusions, but it’s important to read the policy Product Disclosure Statement (PDS) and Target Market Determination (TMD) to understand what specifically is excluded under your policy.

• Causes of death other than accidental death are typically not covered in the first 12 months after you take out the policy.
• Depending on the policy, it may not cover you if your death was due to: suicide or an intentional, self-inflicted act; taking part in any criminal or unlawful activity; being under the influence of alcohol, illegal drugs or any pharmaceutical drug not taken in the correct dosage; war, hostilities or war-like operations; undertaking a dangerous occupation or pursuit (e.g. a dangerous hobby).

How much does funeral insurance cost?

The cost of funeral insurance can vary depending on your circumstances and the provider you choose. Some of the factors that can impact the cost of a person’s funeral insurance include:

• your age when taking out the policy
• your smoking status
• the payout amount you choose
• whether you include any optional add-ons in your policy

Funeral insurance premiums can be level or stepped. Level premiums remain the same as you age, whereas stepped premiums generally increase gradually over time. The type of premiums offered by an insurer can impact the initial cost of premiums as well as their cost over time, so it’s important to pay close attention to this before deciding on a policy.

What are the pros and cons of funeral insurance?

Like most financial products, there are benefits and disadvantages to taking out funeral insurance. Understanding what these are will help you make a more informed decision about what’s best for your situation.

Some of the benefits of funeral insurance

Here are some of the potential advantages of having funeral insurance.

• It can offer the peace of mind of knowing that your loved ones will have financial assistance with paying for your funeral, at what is likely to be a very difficult time.
• Many providers offer guaranteed acceptance as long as you meet the age eligibility criteria.
• It may be possible for your loved ones to receive the policy payout soon after all the claim documentation has been submitted to the insurance provider.

Some of the drawbacks to funeral insurance

Here are some of the potential disadvantages of purchasing funeral insurance.

• Premiums can be expensive, particularly in terms of total paid over time, and in some instances policyholders can end up paying more in premiums than the cover level offered by their policy. Indeed, Moneysmart notes that funeral insurance “can cost a lot more than your funeral.”
• As you age, your premiums may get more expensive, particularly if the policy comes with stepped premiums.
• There are exclusions, such as not being eligible for a payout if you die due to an illness in the first 12 months of having the policy.

How to choose funeral insurance

If you decide to purchase a policy, it can be beneficial to consider funeral insurance policies from a range of providers. Here are some of the factors to take into account when weighing up your options:

• How much are the premiums? Which provider is offering the best value now and is likely to represent the best value over time based on how the policy is structured (e.g. stepped versus level premiums)?
• What level of cover will you be getting for your money?  For example, what is the benefit (payout) amount, what features do the providers offer on their policies, and do they vary in terms of what events they will cover?
• How simple is the claims process? Will it be easy for your loved ones to make a claim and cover or recoup funeral expenses when you have passed away?
• Are premiums capped? Will the insurer prevent you paying more in premiums than the policy’s cover amount, or could you end up paying more than the policy would ultimately pay out? Or in the absence of capped premiums, are there features on offer to limit how much you can end up paying, such as there being no requirement to pay premiums once you reach a certain age?

Canstar’s Funeral Insurance Star Ratings could be a helpful guide for those looking for the policies that offer good value relative to other policies. The Star Ratings factor in cost and features among the funeral insurers on Canstar’s database.

Author: Nina Rinella

As Canstar’s Editor-in-Chief, Nina heads up a team of talented  journalists committed to helping empower consumers to take greater control of their finances. Previously Nina founded her own agency where she provided content and communications support to clients around Australia for eight years. She also spent four years as the PR Manager for American Express Australia, and has worked at a Brisbane communications agency where she supported dozens of clients, including Sunsuper and Suncorp.

Nina has ghostwritten dozens of opinion pieces for publications including The Australian and has been interviewed on finance topics by the Herald Sun and the Sydney Morning Herald. When she’s not dreaming up ways to put a fresh spin on finance, she’s taking her own advice by trying to pay her house off as quickly as possible and raising two money-savvy kids.

Nina has a Bachelor of Journalism and a Bachelor of Arts with a double major in English Literature from the University of Queensland. She’s also an experienced presenter, and has hosted numerous events and YouTube series.

You can follow her on Instagram or Twitter, or Canstar on Facebook.

You can also read more about Canstar’s editorial team and our robust fact-checking process.