What is funeral insurance?
Funeral insurance is an insurance policy that pays out an agreed amount to your estate after you pass away, to cover the cost of your funeral, typically up to $15,000. This is one option for those who are of an age or health situation that makes them no longer eligible for life insurance (which offers a similar death benefit to cover the cost of their funeral).
So if you’re looking at buying a Funeral Insurance policy, read on to find out what we look for in a policy – and what you should be looking for, too.
The table below displays a snapshot of funeral insurance policies on Canstar’s database as of May, 2018. Please note this table has been sorted by Star Rating (highest to lowest) and was formulated based on a male, non-smoking policy holder in his 60s. Check upfront with your provider and read the PDS to confirm the cover details for a particular policy, and whether it meets your needs, before committing to it.
In addition to competitive pricing on premiums, Canstar considers many product features and benefits to be an important part of an outstanding value funeral insurance policy.
Benefits available with funeral insurance
Here is a list of benefits or features to expect when taking out a funeral insurance policy:
- Benefit Payout: When you pass away, a lump sum payment of the amount stated on your policy is paid to your beneficiaries to cover the cost of any funeral expenses.
- Accidental Death Cover: A lump sum payment is made to your beneficiaries to pay for your funeral if you pass away from an accidental death. Depending on your funeral insurance policy, this cover may be a built-in benefit or may be added as an optional extra. According to our database, a total of 6 insurers will double the payment and 3 will triple the payment, as a built-in benefit of the policy. Some policies allow additional cover to be purchased.
- Terminal Illness Cover: An early lump sum payment is made if you are diagnosed with a terminal illness that is likely to result in death within 12 months.
Some policies have an interesting feature for the benefit payout for accidental deaths. They will pay out twice or three times your sum insured if your death was caused by an accident. Our research shows that roughly one third of providers offer this feature.
Funeral Insurance: Accidental injury benefit
This cover provides financial support in the event that you incur a serious accidental injury, such as blindness, major burns, major head trauma, loss of hearing or speech, plegia (stroke), and more. A fixed amount of up to $50,000 will be paid out, depending on the type of injury.
A total of 6 insurers offer Accidental Injury cover, with the minimum offered being $30,000 and the maximum being $50,000.
Funeral Insurance: Child cover
In the event that your child passes away due to accidental death or from any cause, child cover will provide a lump sum payment to pay for any funeral expenses. It also provides a benefit in the event of a serious illness or injury for your child, like paralysis, blindness, deafness, meningitis or major head trauma. This cover is typically an optional extra on top of your funeral insurance policy.
According to our database, 7 insurers offer child cover, with the maximum sum insured amount offered by any insurer being $45,000, and the typical maximum for other events is $15,000. Child Cover through funeral insurance does not replace full child cover of the type offered by products available through a financial adviser, which may pay up to $250,000.
Sum insured within funeral insurance
The sum insured is the key figure you need to look for in a product disclosure statement. This means how much you are insured for. The benefit payout – which is how much your estate receives to cover the cost of your funeral when you pass away – will vary depending on the level of your cover.
What amount of funeral insurance do you need? Our research shows the average funeral now costs more than $9,000 – but there are of course more extravagant funerals that can cost up to $15,000 (ASIC). What you need will depend on your personal preferences and cultural expectations. For example, Jewish funerals are typically very frugal, but Italian funerals can be a lavish affair. We have provided a checklist of things you may want to include in your funeral plan here.
Compare funeral insurance cover using the Canstar website:
There are two main premium caps available: a sum insured cap or an age cap. Some policies have a combination of both, where premium payments cease when either one of the caps are reached.
Sum insured premium caps occur when the total amount of premiums paid so far by the policy holder is equal to the value of sum insured, and it means they stop paying premiums at this point. Consumers will typically reach a sum insured cap earlier than they would reach an age cap, as premiums for products with an age cap are generally higher.
Premium age caps occur when the policy holder reaches a certain age as stated on their policy, and it means they stop paying premiums from this age onwards. There is a possibility that the amount of premiums paid up to this age will be more than the sum insured amount. Some policies will pay out the higher limit of the two, meaning your estate receives as a benefit the full amount of premiums you paid. Others will only payout the sum insured amount as a benefit, which means you could be paying up to twice your sum insured in premiums but your estate only receives your sum insured in the end.
For the first 12 months of your policy, most insurers will only cover your estate for you passing away from an accidental death. After that, you are covered for any cause of death.
On that note, you will not be covered if you pass away within the first 12 to 24 months of the policy from illness, suicide, or any intentional, self-inflicted act. However, mental illness is not considered a pre-existing condition, so after the first 12 to 24 month waiting period, death from suicide will be covered.
Older people can experience periods of financial hardship while living on a fixed or decreasing income. An outstanding value policy should temporarily waive the premiums so that you don’t have to pay them while you are experiencing financial hardship. Different policies will waive the premiums for a different period of time.
To make a difficult time a little easier on your loved ones, you can choose a policy that takes a shorter time to pay out benefits to your estate when a claim is made. Your insurance provider should also enable claims to be made online, with a call centre available to answer questions and provide support.
You’ll never be able to make a time of grief “easy” for your loved ones, but preparing ahead of time can save a lot of stress down the track. Canstar is here to help make your decision process smoother, having researched and rated 17 policy products from 13 providers in Australia in 2017.