Covering The Cost Of Your Own Funeral

Your own funeral can be hard to think about, but some intelligent research and thoughtful planning could ensure value for money with that final big spend.

The first step is to organise the funeral. After organising the details of the funeral, you need to decide how you are paying for it as you will have a few different options available.

Covering the cost of a funeral

Funerals in Australia can cost anywhere from $4,000 to $15,000 with the average being approximately $7,500. Costs can easily vary depending on whether they are simple or elaborate and even in which state they are performed, which can be a problem when many people only find out about funeral costs when we need to arrange the funeral of a family member or friend. Below are some typical items you need to pay for when arranging a funeral:

• Funeral director fees
• Transportation costs
• Coffin
• Death certificate
• Permits
• Burial / cremation
• Cemetery plot
• Other expenses, such as a celebrant or clergy, flowers, newspaper notices and the wake

There are several options available when consciously planning to cover the costs of funeral expenses.

1. Saving for a funeral:
   The simplest approach could just be to open an investment/savings account and contribute a small amount on a regular basis. However, low interest rates may make this approach unattractive.
2. Pre-paid funeral plan:
   This can be arranged with your preferred funeral provider so you can organise the funeral you want when you die.
3. Funeral bond:
   You can also buy a funeral bond from a funeral company which is invested to cover funeral expenses.
4. Funeral insurance:
   This involves taking out a policy and paying regular premiums to maintain your cover.
5. Last roll of the dice:
   Depending on your specific circumstances some funding may be available from other sources if you are prepared to investigate the options.

Pre-paid funerals

Well we are probably all familiar with things such as packaged holidays, or weddings, purchasing multiple items of furniture or house and land packages, so it should come as no surprise that you can purchase packaged funerals.

And just like shopping for other items it’s important to shop around when you are looking for a pre-paid funeral as different funeral directors offer different packages.  When looking at available packages you will be able to / need to assess the cost and also what you want as part of the package. In fact it’s possible to pay for the funeral up front and leave the details for your relatives to decide later.

Depending on your financial position you can usually pay for the funeral in full or pay it off in regular instalments over time.

• Decisions already made – Hopefully making things easier for others in a time of grief, allowing the funeral to be a time when we say goodbye to our loved ones and reminisce on happy memories rather than stress about the costs.
• Fixed fee– Costs are fixed in today’s dollars even if your funeral is not for many years.
• You choose what you want– You can control funeral arrangements allowing you to choose items such as the casket, flowers etc.
• Flexible payment– You can pay in instalments over time or upfront.
• Cheaper than other funeral products– Can be cheaper than a funeral bond or funeral insurance if you live for several more years.
• May not be valid in other states or territories– Some prepaid funerals can be inflexible if you move interstate to live with family. If this may be an issue then you may need to look for products that are transferrable to different providers.
• Exclusions may apply– If you change your mind about a pre-paid funeral you may not be able to get your money back.

Funeral bonds

Funeral bonds are advertised as an investment product that can be applied towards paying for funeral expenses. As an investment product it is important to fully understand the terms of the product and as such should read or understand the bond’s prospectus to find out the details. As a broad example of some of the intricacies of these products;

• You can invest in a bond either directly through a friendly society or life insurance company, or directly from a funeral director;
• It may be possible to both assign the funeral bonds to a funeral director of your choice or perhaps this can be delayed until after death and assigned by your family.
• You may have the option to pay for the funeral bond in instalments or in one lump sum

Considerations for funeral bonds:

• Centrelink – The bond may be exempt from the asset and income test for Centrelink purposes which may help when assessing eligibility for the Aged pension. Money invested in burial plots, pre-paid funeral plans or funeral bonds (up to the Funeral Bond Allowable Limit) is not subject to the asset or income test for the Age Pension.
• Forced saving– Funeral bonds designate money to cover funeral costs
• Set and Forget– Prepaying allows you to pay in advance, and think about the details later.
• Investment – This can form part of a broader investment strategy or financial plan
• Flexible choice– You are not locked in to using a specific funeral director while you may be able to buy your bond upfront or pay in regular monthly payments.
• Buyer beware– If you pay in instalments and die before the bond is fully paid for, you only receive paid into the bond plus earnings, which may not fully cover the costs.
• Investment risk – insufficient investment earnings may require your family or estate to contribute to meet your funeral costs.
• Product misunderstanding– A funeral bond will not lock in the funeral costs in today’s dollars and as such may not cover the full cost.
• Cancellation restrictions– You may not be able to get your money back if you decide to discontinue the bond.

Funeral Insurance

Funeral insurance aims to give your family/estate a lump sum payment to help pay for funeral and associated expenses when you die.

Considerations for funeral insurance:

• Detailed investigation or advice is necessary to ensure that the policy doesn’t cost you more over time than the cost of a funeral.  Capped premiums and a pay-out guarantee are worth investigating to determine if your dependants will receive either the total premiums paid or the original sum insured, whichever is higher.
• How long will it take for the claims to be paid out? Will the amount be tax free? What documentation needs to be provided to initiate the payout?

• Are the premiums going to be fixed, increasing or do they steadily reduce over time?
• Are there any add-on benefits that you may want?
• Guaranteed renewability – does cover continue for as long as you continue to pay your premiums?

Last roll of the dice

Some potential alternative options include:

• If you have life insurance either inside super or personally, when you die your Insurance company and or super fund will pay out your entitlements to your dependents or your estate. As this may take some time your family may need to pay for your funeral and then be reimbursed once probate is granted.
• You may be entitled to funeral payments from the Department of Veterans’ Affairs (DVA), your trade union, or your state or territory government.
• A bereavement payment may be available through the Department of Human Services.
• In some circumstances (like if you have a terminal illness) you may be able to get hold of any remaining super early to cover funeral expenses.

Steve Wildes, Partner, Paris Financial