Funeral insurance allows for a lump sum payment to cover funeral expenses when a person dies. Typical expenses include a coffin, funeral vehicles, flowers and fees for burial or cremation and a funeral director. The payment can also be used to help settle a person’s affairs, such as to pay outstanding debts.
Funeral insurance premiums can be paid in instalments for a fixed amount of cover, usually between $5000 and $15,000. The premium amount depends on the cover level, payout amount and the person’s age, health and lifestyle.
Funeral insurance has come in for criticism, including for its cost and its many exclusions.
Insurance cover is generally available to Australian citizens or permanent residents, and New Zealand citizens, aged 45 to 80.
Insurance payouts are usually refused in circumstances including:
- death during the first 12 months of the policy;
- accidental death directly or indirectly the result of:
- an accident that occurred before the policy start date;
- suicide or an intentional self-inflicted act;
- participation in criminal or unlawful activity;
- being under the influence of alcohol or illicit drugs;
- undertaking a dangerous occupation;
- participation in dangerous pursuits.
Funeral insurance is not the process of a person saving for funeral costs, but them buying insurance to meet funeral costs at later date. Factors to consider include:
- The amount paid over the next 10, 20 or more years could add up to be more than the costs of a funeral.
- Whether a future income, such as the age pension, will be sufficient to afford premiums;
- Premiums can increase after the person turns 50 and every year with inflation;
- There is usually no refund on premiums paid when a policy is cancelled (such as when premiums become unaffordable).
Alternatives to funeral insurance include a prepaid funeral, funeral bond, superannuation, and Department of Veterans’ Affairs bereavement assistance.
A prepaid funeral plan can be cheaper than funeral insurance or a funeral bond. The funeral cost is calculated at the price of the day the plan starts and does not increase. It can be paid in full or in regular instalments. The plan may be able to be transferred if the person moves to another state.
In most states, a funeral director must place prepaid funeral payments into a registered funeral fund. This protects the consumer if the funeral director goes out of business.
A funeral bond can be bought from a funeral director, life insurer or other agency. An initial deposit is made, then regular deposits are made and the amount gains interest. The money cannot be accessed and can be used only for a funeral. Many funeral bonds allow the person to choose a funeral director.
Funeral expenses may be covered by a person’s superannuation but it may take some time to access the funds. This means the expenses may have to be paid upfront by family members and reimbursed when the person’s estate is finalised. Superannuation can be released early in some situations, such as terminal illness.
Department of Veterans’ Affairs bereavement assistance
In some circumstances, funeral expenses can be paid by the Department of Veterans’ Affairs after the death of a member or former member of the Australian Defence Force. To be eligible:
- liability for the member or former member’s death must be accepted under the Military Rehabilitation and Compensation Act 2004;
- the member received the Special Rate Disability Pension or was eligible to receive it at some time;
- the member was entitled to the maximum rate of permanent impairment compensation immediately before their death.
For advice or representation in any legal matter, please contact Armstrong Legal.