You might’ve seen the age old funeral insurance ads during mid-morning television shows. They pull on your heartstrings and make you consider funeral insurance - who would want to leave their family in the lurch during their passing?
So, what is funeral insurance?
Like other insurances, funeral insurance is a policy that will payout a lump sum in the circumstances of death and funerals. With fortnightly or monthly payments, you could receive anywhere from $5,000 to $15,000 in cover for funeral costs. Many people get funeral insurance as peace of mind for themselves and their loved ones in the event of terminal illness or sudden death.
Unfortunately for Australians with a funeral insurance policy, this is generally not an effective way to set you or your family up for your death. You aren’t saving for your funeral with the insurance, but rather you’re paying for insurance to meet those costs at a future date, whether that be in 1, 5, or even 20 years time.
Getting funeral insurance at 65 while you live a long healthy life and pass away at 85 means you would’ve spent much more on the insurance than your eventual funeral costs.
Some people might see it as a better alternative to life insurance, which can have limitations on age, disability and terminal illness. But what you might not realise is that funeral insurance can end up as money down the drain.
The hard facts about funeral insurance policies
- You could end up paying more for funeral insurance than you would the cost of your own funeral.
- If you miss a payment, then you are no longer covered by your insurance.
- Funeral insurance premiums can rise while the capacity and income for the policyholder tends to decline.
- If you decide to cancel your insurance after the cooling off period, you won’t receive any of your money back and it’ll all have gone to waste.
- In 2018, a royal commission found that less than 20% of funeral insurance policies are paid out, meaning these companies get to pocket all the funds.
- Most insurance policies have a waiting period of 12 to 24 months before a claim can be made for natural death, which could mean you’re not covered when the time comes.
The difference between life insurance and funeral insurance
Life insurance might sound similar to funeral insurance because a lump sum will be paid out to your nominated beneficiary at your passing, however unlike funeral insurance, this sum will cover so much more than just a funeral.
Life insurance can also be paid out in the event of terminal illness, meaning you and your family can be paid as a form of income replacement, as well as to cover debt, a mortgage or whatever financial support you need. Depending on your level of cover, a life insurance policy can payout anywhere from $100,000 to $15 million.
The downsides to life insurance are that it can be expensive and exclusionary based on age, health and medical history, so it generally isn’t an option for people later in their life.
Life insurance is included in many superannuation plans, so be sure to check if you’re already covered.
What if I’m already paying for funeral insurance?
If you’re currently covered by a funeral insurance policy, it’s best to chat to a financial advisor to get some professional advice on your situation. If you expect your passing will occur in the next couple of years, keeping your insurance may be the best option for you.
However, if you compare the cost of your policy with the cost of a prepaid funeral at Bare, you might find the numbers looking more favourably towards cancelling and organising your own prepaid funeral.
What should I do instead to prepare for my death?
Death is inevitable, so we should be prepared for our passing and not leave the burden of organising a funeral on our friends and family. This is why at Bare Cremation we offer prepaid funerals, which are a fixed sum and will cover the complete cost of your cremation at an affordable price.
Part of the burden of organising a farewell for our loved ones is not only the financial aspects, but also the emotional. By organising your own funeral, you can be the one to decide exactly what you want, and ensure your wishes are followed through, rather than a traditional, expensive funeral that will not properly celebrate you and your incredible life.
Find out how to plan for the future and save your hard earned money by visiting the Bare Cremation website here or calling 1800 202 901.
Please note: this article is not legal or financial advice. You should speak with your solicitor, accountant or financial advisor for specific advice on your personal or financial situation. Please read the PDS or public disclosure statement on any insurance policy you decide to take out.