Ensuring your family doesn’t suffer financially in the case of your death is a good idea, but the National Information Centre on Retirement Investments (NICRI) warns consumers to be very careful before signing up to funeral insurance and other prepaid funeral plans . Our investigation found:
According to actuaries Rice Warner, taking out funeral insurance at age 65 could mean your premiums almost add up to the costs of four funerals if you live until 91.
Covering your costs
You pay for all or part of a funeral, usually at today’s prices, and the services you paid for are covered when you die regardless of how much it would cost at that time. There are a few ways to fund prepaid funerals:
- Small contributory funds: You make small, regular payments for part or all of a funeral service with a particular funeral director. Conditions vary between funds.
- Pre-purchased products: You pay for a cemetery plot, wall niche or place in a memorial garden, usually directly from the cemetery or crematorium.
Prepaid funeral plans: You choose the type of funeral you like and pay for it in full or make a deposit and pay instalments over a fixed period. Only some plans offer a refund if you cancel – always check this before committing.
Are usually offered by friendly societies or life insurance companies, and require you to make a lump sum payment or pay by instalments. The money is invested and can only be used to cover your funeral. The funeral bond can be in your name or joint names; in the case of the latter, the benefit is normally paid on the death of the first joint owner.
You usually make a regular contribution until age 90, after which time cover continues for free. The benefit amount is either fixed or increases over time, and you’re usually only covered for accidental death for the first couple of years. An age limit of between 18 and 79 years normally applies for taking out cover – the older you are, the higher the premium.
Premiums can be fixed or increase each year, and can vary according to your gender and whether or not you smoke. If premiums are not fixed you often won’t know how much they increase in subsequent years. If you stop paying your premium, you’ll no longer be covered and in most cases won’t receive a refund.
Premiums for funeral insurance policies vary considerably. In one example NICRI calculated in November 2010, monthly premiums between providers ranged from $72 to $120 for a cover amount of $15,000 for a 65-year-old non-smoking male.
Life insurance can be taken out as a standalone policy or through your super fund. The cover amount is usually more than $100,000 and covers your dependents as well as your funeral costs.