At first glance, funeral insurance might seem like a smart way to plan ahead and save your family from future stress. But only one in three premiums are ever paid out. That means most families won’t ever see a cent back from the money forked out over the years. There’s even been a royal commission into it.
In contrast, a Bare prepaid funeral is a smarter alternative to funeral insurance. A prepaid funeral is not an insurance product. That means once your arrangement is paid, there are no more charges. It also takes the pressure off your family when the time comes, because the funeral provider handles all arrangements under the plan. Your loved ones will not need to organise or pay for the funeral during their time of grief, as everything is managed by the provider in line with your chosen plan.
In this article, we explain the differences between funeral insurance and a prepaid funeral plan so that you can make the most informed choice about planning ahead without getting ripped off.
How does funeral insurance work?
Understanding how funeral insurance works can be confusing. It’s inconsistent between providers and premiums generally go up as you get older.
Funeral insurance is a financial protection that provides your family or nominated beneficiaries with a lump sum payment to pay for funeral expenses when you die. Policyholders usually made either fortnightly or monthly payments in exchange for cover ranging between $5,000 and $15,000.
It is important to understand that funeral insurance is NOT a method of saving for your funeral costs. Instead, policyholders are buying insurance to cover expenses to the value of what a funeral may cost in the future, rather than the cash being held in a bond or savings account in their name, for future access.
With a funeral insurance premium, there is no requirement that the money will be used to pay for your funeral. The beneficiary has complete discretion over how the insurance payout is spent. It might not end up being used for your funeral at all. Funeral insurance policies can be complex, and the costs often increase over time. For people who prefer certainty and control over their future arrangements, a prepaid funeral plan might be a better alternative.
How does a prepaid funeral plan work?
A prepaid funeral plan is a formal agreement with a funeral provider that allows you to arrange and pay for your funeral in advance at today’s prices. Each plan is a formal contract between you and your chosen funeral provider, outlining the exact services that will be delivered. This can include your choice of burial or cremation, the type of service, coffin or urn selection, floral arrangements, transport, and professional fees. Having these details clearly set out means you know exactly what you are paying for.
One of the biggest advantages of a prepaid plan is that it secures your chosen services at today’s prices, protecting you from future cost increases and giving you peace of mind that the price you agree on now will not rise over time. Once the plan is fully paid, there are no further costs for you or your family, and the services are guaranteed to be delivered as agreed when the time comes.
The money you pay into a prepaid plan is securely held in a regulated trust or funeral bond until the time of need. This ensures your funds are protected and can only be accessed when the funeral is carried out. It’s always best to obtain a written, itemised contract before you pay. The document should specify each service included and the total cost so that you understand exactly what’s covered.
Some people also consider funeral bonds as an alternative. A funeral bond is an investment that allows you to save towards future funeral costs but does not include any pre-arranged services or guarantee a fixed price. In many prepaid plans, funds are placed in a funeral bond. These funds may earn modest interest over time and are protected under legislation, ensuring the capital value is maintained. The difference between a funeral bond and a prepaid plan is that a bond simply sets aside money for future use, while a prepaid plan specifies services and costs in a binding contract.
Paying for a prepaid funeral plan can also help you maintain eligibility for your Age Pension or other Centrelink payments. Funeral costs you pay for in advance generally don’t count in your assets test for payments from Centrelink, although there are some exceptions. For more information, visit Services Australia or speak with a financial adviser.
Who is eligible for funeral insurance?
Any Australian resident over the age of 18 can take out a funeral insurance policy, as long as they meet the provider’s eligibility criteria.
Who is eligible to take out a funeral insurance policy?
Most funeral insurance policies are subject to a set of medical or lifestyle criteria. Some applicants may be required to undergo medical testing or provide blood tests as part of the provider’s screening process. Others are less stringent and guarantee approval of any Australian adult up to 79 years of age, without needing paperwork or medical screening.
In contrast, a Bare prepaid funeral plan is available to any Australian resident. There is no eligibility criteria.
Who is eligible to claim a funeral insurance policy?
Funeral insurance policies differ between providers in the way eligibility to make claims are determined. Many providers have strict requirements that must be met before any payout is awarded to a policyholder’s nominated beneficiaries.
Before taking out a funeral insurance policy, or deciding if you should continue paying a current premium, It’s important to understand what is covered and what is not.
Policies are generally subject to the following clauses:
- A 12 month ‘accidental death only’ period. This means that if you die within the first 12 months of taking out your funeral insurance policy, your beneficiaries will not be paid out unless it was an accident. So if the death was a result of a medical condition - for example, cancer or heart attack - or if it was a suicide, the policy won’t be paid out.
- No payment of a terminal illness benefit if you are diagnosed with a terminal illness within the first 12 months of the policy being held or reinstated.
- No payment of an accidental serious injury benefit if the policyholder is diagnosed with blindness, deafness or even in the consumption of alcohol or drugs.
In contrast, a Bare prepaid funeral plan guarantees that the costs of a funeral will be covered in any circumstance, regardless of how the person died.
Do costs increase over the years?
The cost of funeral insurance is calculated based on several factors, including your age, gender, where you live and whether or not you smoke. Prices also vary between providers and whether you choose a ‘stepped’ or ‘level’ premium.
Stepped insurance premiums are calculated according to your age, gender and sum insured each year the policy renews. That means while you will pay a lower premium to begin with, your premiums will increase every year.
For example, the average price of a funeral insurance policy at age 60 is $14.98 per week. But at 70 years, it almost doubles to $26.33 per week, according to figures obtained by comparison website Finder. Add on another 80 years and that weekly premium skyrockets to $59.61.
This is why funeral insurance premiums generally become far too expensive for pensioners to maintain. And once they stop paying, they will lose every dollar they have already forked out.
On the other hand, level insurance premiums are a set amount when you initially take out the policy and the amount won’t increase as you get older. The downside to these premiums is that they are generally higher than stepped premiums, so it’s worth price-matching.
In contrast, the national average cost of a prepaid funeral with Bare is about $159.50* per month over two years (actual prices vary by location). Alternatively, you can also choose to pay the full amount upfront, which averages around $3,678*. And once it’s paid, it’s paid!
*Bare prepaid prices correct as at October 2025. These are the national average prepaid prices, actual prices vary depending on location. Click here to get a prepaid quote tailored to your location.
What else you should know before buying funeral insurance
As mentioned earlier, the funeral insurance sector has been investigated as part of a wider Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry.
The commission found that of the $300 million a year in customer’s money, only A THIRD of benefits were ever paid out. The commissioner added that Australian funeral insurance “gives little value to consumers”.
Here are some other facts you should know before paying for funeral insurance:
- Many funds increase your premiums and policy coverage amount annually.
- If you cancel your policy before death (or reaching the Early Payout date if offered in your policy), you won’t get a cent back.
- In most policies, there is no cap on what you may pay over the term of the policy. So if you live a long life, there’s a chance you could end up paying far more over the years than the benefit payout.
- The long-term affordability of the policy isn’t based on your current income, but the income or pension you are expected to have in the future.
It’s important to be aware of which exclusions or factors apply to the policy you are considering or your current premium.
What if I’m already paying funeral insurance?
If you’re currently paying funeral insurance and considering a prepaid funeral plan, you have a few options:
The first is to cancel your policy and switch to a prepaid funeral arrangement with a funeral provider like Bare. This means you forfeit your potential payout, but it’s likely the cheapest option if you’re planning on not needing a funeral for a few years or more.
Or instead of cancelling altogether, you might continue paying your funeral insurance premiums AND also take out a prepaid funeral plan. That way, if you’ve already prepaid your funeral, your beneficiary would instead keep the cash benefit to use however they wish - towards a mortgage, to buy a new car, a holiday, or your grandchildren’s education.
Alternatively, you can keep paying your funeral insurance as normal, but advise your family to use some of the payout to arrange a simple cremation with Bare when the time comes. This is what we recommend if you’re expecting you might need a funeral in the next three years or so. If you prefer to wait until the time comes, we suggest putting a request in your Will or Advance Care Directive that your family applies the policy payout to cover an arrangement with Bare.
If you’re unsure where to start, reach out to Bare’s prepaid specialists. They can guide you through your options, explain how prepaid plans work, and provide an itemised quote based on your location. Speaking directly with a funeral director who offers prepaid plans is the best way to find what suits your needs and budget.
It’s also a good idea to record and share your personal funeral wishes, such as whether you prefer burial or cremation, the type of service, music, readings, or any special details you’d like included. Discussing these preferences with your family and noting them in your Will or Advance Care Directive helps ensure everything is arranged according to your wishes when the time comes.
If you'd like to chat with our prepaid specialists for a recommendation, feel free to give us a call on 1800 202 901.
How to claim funeral insurance
Each provider has a different process for how to claim funeral insurance. But generally, once the policyholder has died, the beneficiary contacts the insurance provider to make a claim. They will usually need to provide a certified copy of the policyholder’s death certificate and proof of their age at death, plus proof of their own identity and relationship with the deceased person. There is usually a claim form to be filled out and submitted for review.
The claim is subject to the insurance provider’s discretion and it can take several days before any benefit is released.
Final thoughts on funeral insurance
Funeral insurance is a product that can provide a cash payout to beneficiaries after the policyholder dies, but only if certain criteria are met. Many policies are only of value if the policyholder dies between about two and five years. And there is no guarantee the money will be used for a funeral.
Shockingly, only a third of policies are ever paid out. Many premiums are cancelled before they are eligible to be paid out, mostly due to the rising costs over the years and pensioners no longer being able to afford the premiums. Those families won’t ever see a cent of the money already handed over over the years.
We didn't like how vulnerable Australians were getting ripped off with funeral insurance. So we created an affordable prepaid funeral service to take the risk out of end-of-life planning. A Bare prepaid funeral plan guarantees your funeral is paid for, taking the future stress off your family.
Rather than ongoing funeral insurance premiums, once a Bare Prepaid Cremation is paid, it’s guaranteed to cover the full cost of your cremation. You can choose to pay upfront or in monthly instalments over two years. There are no recurring charges beyond the length of your instalment plan and nothing more to pay later on. Your cremation arrangement will be carried out exactly as outlined in your prepaid contract, giving you and your family complete peace of mind.
You can find out how to plan for the future without getting ripped off, by clicking the button below, or calling 1800 202 901.
Disclaimer: This article and all information and pricing within it was accurate at the time of writing. Please see bare.com.au or linked sources for current pricing. This article provides general information only and does not constitute professional advice. Please consult a qualified expert for guidance specific to your situation.
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