I have a client who is a 38yo male, single dad and we were working on his budget to determine his total cost of living. I noticed an amount of $22 pm kept appearing from an insurance company. I asked him about this and he said it was funeral insurance. When I contacted the insurer they told me he was paying $22 pm (indexed to CPI) for a sum insured of $9,000.
Think about that for a moment. If he lives to a ripe old age of 80 or beyond, he will have paid over $12,000 in premiums for a payout of $9,000 and this doesn’t factor in indexation! Worse, if he cancels the policy he loses all the money he’s paid. Crazy isn’t it!
Too often I see advertisements for Funeral Insurance, Pre-Paid Funerals or Funeral Bonds and there is much confusion. Now I’m not implying that you may fall off the perch anytime soon and that you need a funeral plan, but if you know someone, perhaps a parent or grandparent, that is thinking about a Funeral Plan, I thought I’d explain the differences here;
Prepaid Funeral
This is when a consumer goes to a funeral home directly and pre-arranges their funeral for a fee.
It can be a convenient way for loved ones to be spared the worry of organising a funeral during their grief and hopefully have no hidden expenses.
Funeral Bonds
Funeral bonds are an investment product where your money is released after death to help cover funeral expenses. Funeral bonds have tax benefits and are exempt from the Centrelink Income and Assets test, which can be handy if you are close to the thresholds. There is a limit of $11,500 for each member of a couple.
These types of products can be beneficial if you are close to the Centrelink Income or Assets test thresholds. They can also help loved ones cover funeral expenses immediately without having to wait until probate to release the estate funds, or worse, borrowing money to cover funeral costs.
Funeral Insurance
This is when a consumer pays a monthly premium for an insurance product that will pay out a pre-determined amount upon death.
The issue with these types of policies is that if you live a long and healthy life, you can end up paying for the cost of a funeral several times over! And, as with many other forms of insurance, if you stop paying the premiums you lose the cover – regardless of how much you have shelled out in the intervening years. For some, it can be difficult in later years to keep paying the premiums when cashflow is tight, and consumers feel compelled to continue paying because of how much they’ve paid already.
What’s confusing about all of these is that they are each called Funeral Plans!
Having a funeral plan is unselfish, because it reduces the anxiety and stress of the loved one left behind. I’ve seen far too many clients organise funerals and, on top of their grief, have the added financial burden of having to pay the funeral home, who wants to be paid immediately. Unfortunately for the family, the estate assets are tied up until probate is granted which can take months or years. I understand why a funeral plan may be a great idea but please speak to a professional before making the decision to work out what’s appropriate for you or your loved one.
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