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Should you get a prepaid funeral?

Part 3 of our investigation: How well-meaning advance payments fuel a questionable funeral-plan industry worth billions.

lots of flowers on a coffin at a funeral the hidden costs of a funeral
Last updated: 03 October 2019

Need to know

  • Funeral plan products – such as insurance, bonds and prepaid funerals – have sprung up in response to the anxiety people feel around paying for funerals
  • Businesses say they offer peace of mind, but family members of people who sign up to such products tell us a different story
  • Regulators and the banking royal commission have investigated funeral-plan providers amid claims of unethical practices

The funeral industry, as revealed in Part 2 of our funerals investigation, charges mourners inflated prices for its goods and services. In doing so, it creates demand for yet another funeral product to drive profits: advance payment plans. 

The choice, according to businesses, is between paying thousands of dollars before you die or saddling your loved ones with the burden.

Profiting from people's fears

In the past eight years, the average cost that funeral homes charge for direct cremation has more than doubled to $3100. When you include a funeral service, costs can be much higher.

According to our funeral mystery shop, the average cost of the cheapest funeral package with a service offered by national brands Simplicity Funerals and White Lady Funerals is $5600 and $9100, respectively. InvoCare, the company that owns them, raises its prices by three to four percent each year – well above rates of inflation.

For those who can't afford to pay, the multinational offers a pay-by-instalments option – with some conditions. Its Guardian Plan business acts as an intermediary, connecting customers with the APRA-regulated friendly society that minds their money and the funeral homes that will eventually spend it.

Prepaid funerals are big business for InvoCare, which conducts a third of all funerals in Australia's metropolitan areas

The catch? Customers must pay in advance and use an InvoCare funeral home, probably to the tune of about $8000 – the average cost of a Guardian Plan contract. 

Prepaid funerals are big business for InvoCare, which conducts a third of all funerals in Australia's metropolitan areas. The company's own modelling shows its national market share would be as much as 22% lower without the prepaid funeral arm of its business. 

It isn't the only firm to have seized on this business opportunity. Companies have come up with a number of funeral-plan products – insurance, bonds and prepaid funerals, among them – in response to the anxiety people feel around paying for funerals.

What is a prepaid funeral?

  • You can arrange and pay for your funeral with a funeral director, at today's prices
  • In most states, the funeral director must place your payments in a regulated fund

What is a funeral bond?

  • Your payment is invested by a company and will probably grow in value
  • It can be used for a prepaid funeral but your investment belongs to the funeral director
  • Otherwise, the investment is paid to your estate after your funeral

What is funeral insurance?

  • If you pay the premiums on time, your family gets a fixed amount of money after you die

For some people, funeral plans are a helpful way to manage the rising cost of funerals. For others, they make an already vast network of funeral services even more complicated and confusing.

When funeral plans go wrong

Critics have accused the funeral-plan industry, which is worth billions of dollars, of exploiting the vulnerable. Australia's consumer protection agencies ran a campaign in 2015 to help people understand the different products and "avoid a funeral rip-off".

Over the years, regulators and the banking royal commission have investigated funeral-plan providers amid claims of unethical practices. The results showed that policyholders with the worst luck can lose everything.

Funeral-expense business skirts regulation

Much of the public scrutiny focused on a funeral-expenses business that targeted Indigenous communities. Policyholders with the Aboriginal Community Benefit Fund (or ACBF, which is not, in fact, an Aboriginal entity) lost thousands of dollars when their plans were cancelled due to missed payments, or paid far more in premiums than they would get back.

Unlike mainstream insurance policies, the ACBF doesn't provide lump sums – instead, it only reimburses funeral expenses. This let the business skirt regulations that insurance providers have to follow – a loophole the federal government has agreed to close in line with the royal commission's recommendations.

Many policyholders don't understand the funeral plan contracts they sign or the full costs involved

Gerard Brody, CEO, Consumer Action Law Centre

Gerard Brody, CEO of the Consumer Action Law Centre, says many policyholders don't understand the funeral plan contracts they sign or the full costs involved. People who buy an ACBF policy think it's a savings plan, and other insurance products start off cheap, only to have premiums rise over time and become unaffordable.

Clients – particularly those on low incomes – take out these plans because they're "concerned about the financial burden on their family when they pass away," says Brody. "They're trying to protect themselves."

Money for prepaid funerals disappears

Keith Chew was a proud and independent person, according to his son, Malcolm. Keith was determined to have his entire funeral organised and paid for in advance. Most months, starting May 2002, he made a payment of $100 or $200 to O'Brien Family Funerals, and by late 2005 he'd paid the full balance of $3274 for his funeral. 

He died in 2018. When Keith's son Malcolm tried to find O'Brien Family Funerals, he discovered the business had closed down and the owners had vanished. NSW Fair Trading investigated but couldn't gather enough evidence to take compliance action. The money was gone.

Malcolm says his father would have been "mortified". 

"He would roll over in his grave if he knew that this had happened to him because he was very pedantic about things like that," he says. "He was quite astute with his money."

woman walking through cemetary

The funeral industry charges mourners inflated prices. In doing so, it creates demand for yet another funeral product to drive profits: advance payment plans.

Recognising the risk, state governments decided it would be safer if funeral directors had to hand over money received for prepaid funeral arrangements to a reliable third party. Gradually, over the past few decades, Victoria, Tasmania, SANSW and Queensland have brought in laws requiring funeral providers to place the payments with a regulated fund.

Of course, a law can be broken – and O'Brien Family Funerals broke it. Keith's payments were never transferred to a funeral fund.

In another case, South Australian funeral director Robin Knight cashed in the prepaid plans of 200 customers by lodging fake claims of their deaths. He was sentenced in 2015 to four-and-a-half years in prison.

Debra Petrys' parents were two of his clients. When her mother died the same year Knight was jailed, the family had to pay the full price again for her funeral.

"After this experience, I would never buy a prepaid funeral plan," Debra says. "The only comfort I have is that my parents never knew that this had happened."

But, for some people, there's comfort in being prepared.

Why prepay?

There are certain advantages to prepaid funerals, which lock in the current price at the time you sign up. This generally means that the further in advance you take out a plan, the bigger your saving. 

In our survey of people who recently organised a funeral, one respondent wrote that "everything was vastly cheaper" for their father's prepaid funeral "because you are in a position to shop around".

Everything was vastly cheaper because you are in a position to shop around

Survey respondent

Prepaid funerals can also appeal to people who want to dictate their own funeral arrangements, and the marketing for them plays on this desire for control. None of us can necessarily control the circumstances of our death – it can happen at any time – but we can control what happens afterwards. At least, that's the idea we're sold.

In a radio ad for Christian Funerals, a commanding voice urges listeners to lock in a prepaid funeral to "plan the funeral you want and take the emotional burden away from your family". Another, for Hiram Philp Funerals, insists that getting a prepaid plan with them "removes the financial burden from your family and ensures your wishes are honoured". WT Howard Funerals claims it wants to help you "make your funeral the way you want". 

These are just a few of the 100-plus ads for funeral plans on Australian airwaves most days. Many of them, like the examples above, are from the country's two largest funeral companies, InvoCare and Propel. These ads sell the idea that your funeral is, essentially, about you: in other words, tailor your ceremony to your liking and, in the process, relieve your family of a burden. 

Prepaid funerals can appeal to people who want to dictate their own funeral arrangements, and the marketing for them plays on this desire for control

At this point, a bigger question emerges: what is a funeral for, anyway? Some would answer that it's a therapeutic ritual. But is it meant to comfort the dying or the grieving?

Dianne McKissock, a co-founder of the Bereavement Care Centre, says most people want to be involved in arranging a loved one's funeral because it enables them to express their feelings for, and relationship with, the person who has died – an important first step in learning how to live with their death.

Prepaid plans hinge on the idea that, by transferring the "burden" of our funeral to a funeral director, we're doing our family a favour. But, in the process, we also transfer control of the funeral away from the family, which can sometimes cause them distress.

Even InvoCare encourages its Guardian Plan customers to leave some elements for loved ones to organise later, purportedly to give them a "meaningful role in planning your funeral".

funeral contract with unexpected extras fine print

It's not uncommon for people to feel stuck with a funeral plan contract that doesn’t serve them.

Unexpected extras

Payments for prepaid funerals under Guardian Plan are invested with the Over Fifty Guardian Friendly Society, and Guardian Plan assigns all policies to itself. This means the earnings on customers' investments go directly to InvoCare, and if the funds don't meet the cost of the services laid out in your contract when you die, the company will cover the difference. 

That may sound generous, but the flipside is that if the investment has grown to be greater than the cost of the funeral, InvoCare gets to pocket the surplus – a scenario the company is banking on. Last year, it made $800,000 in surplus funds and expects an increase each year to at least $1 million in 2021 and even more beyond. 

Last year, InvoCare made $800,000 in surplus funds from prepaid funerals

And if any items in your prepaid contract go unused at the time of the funeral, you can't get a refund or even swap them for other funeral products or services. You also can't use any surplus funds from your investment to pay for additional aspects of the funeral.

A number of participants in our funeral survey say they were caught off guard by extra charges that weren't covered by their loved ones' prepaid contracts.

"I didn't realise that there are extras to pay with prepaid funerals," wrote one. "I then felt not able to negotiate a price… so we paid extra. It was all very uncomfortable."

This brings us to a pitfall of prepaid plans that's more common than the well-documented risk of theft or funeral-insurance traps – feeling stuck with a contract that doesn't serve you.

The ghost of plans past

Take the stories of two members of the Metropolitan Burial and Cremation Society Funeral Contribution Fund, Beverley and Carmen* – both of whom had been paying the fund since the early 1950s – and their families. 

When a door-to-door salesperson signed Beverley up to the fund in 1951, she thought she would get a casket, a hearse, a car and one transferral of her body. A membership card she received decades later also stated that fees for interment or cremation, a grave and advertising would be covered up to a total of $160 at 1976 prices (the equivalent of $1000 today), as long as she remained a paying member of the fund.

"Every year my mother was paranoid that she had to pay… otherwise she would've lost everything that she'd ever paid," Beverley's daughter Kathleen says.

On the face of it, the payments were small: $1.80 per month or about $22 per year. But over the course of 65 years, they added up to a considerable sum. In 1976, $22 was worth about $140 today.

InvoCare bought the fund in 1993 and, in 2011, changed its rules. The benefit became a $1400 discount on an InvoCare funeral and required yearly payments of $22 to maintain. 

"We thought it was disgraceful that after all those years – where the actual booklet said that she was going to get a hearse and the casket and funeral and everything – [we got]  $1400," Kathleen says.

InvoCare’s PR manager Jacinta Gale says members of the fund who believe they’re entitled to the benefits listed on the old membership card are mistaken and “not taking into account the benefit limits on the card”. She also says the fund had no money reserved for InvoCare to draw from to provide the benefits after the takeover.

The old membership card states the benefits are “based on the Company’s schedule of charges as at 1/8/1976”, and that “any increase in the said schedule rates… at date of claim, [are] to be paid for prior to the funeral service”.

That didn’t stop Carmen, like Beverley, from thinking her family would receive the listed items for her funeral. Carmen’s son, Dan O’Dea, remembers going with her on regular trips to a funeral home to make payments in the early 1950s.

“She really thought the cost of hers and Dad’s funerals should be covered and she was so disappointed when Dad died and the only credit was $1400,” Dan says.

For both Carmen and Beverley, money was tight during the ‘50s. They signed up to their funeral plans in the fear that their families would be burdened without them. But the funeral plans themselves became the burden. 

Carmen died in June 2016. Dan used Guardian Funerals to claim the $1400 discount and paid the remaining $9330 for her funeral.

"It was not a huge, complicated funeral, yet the funeral directors know how to add items into the bill," Dan says. "$2000 to move the body? Give me a break. It's just wrong, taking advantage." 

The invoice listed a $1800 fee for transport and mortuary care, and $530 for after-hours transfer. Dan doesn't believe Guardian Funerals' care of his mother's body justified the cost.

$2000 to move the body? Give me a break. It's just wrong, taking advantage

Dan O'Dea, Guardian Funerals customer

The funeral home strongly discouraged the family from viewing the body, claiming it was bloated and discoloured. "They said they couldn't put it straight into storage because it was a Sunday and they were late to pick up," says Dan. "My sister was devastated, she was absolutely distraught."

In 2015, Kathleen also went with Guardian Funerals for her mother's prepaid funeral, so she could use the $1400 discount. But she still spent $8050. 

Three years later, she paid almost half the price for a similar funeral for her father, which cost $4500 with a funeral home on the Central Coast of NSW. Kathleen says the family-owned business was "amazing and so unbelievably cheap that you wonder how other companies can charge what they charge for basically the same thing". She wishes she had relinquished the $1400 allowance and used a different funeral provider for Beverley – and the high cost wasn't the only reason.

When you don't get what you signed up for

It mattered to Kathleen that her mother's body would be placed in a rosewood coffin. Beverley loved the rich, red hues, and had rosewood furniture throughout her house. 

In 2015, Beverley sold her house so she could afford to move to a nursing home in south-western Sydney. She had some money left over and Centrelink advised that she could prepay for her funeral to avoid cuts to her pension.

A letter that arrived in September, reminding Beverley to make her yearly funeral-fund payment, also told her she could "upgrade" her benefit to a Guardian Plan prepaid funeral. The following month, Kathleen and her sister visited Guardian Funerals to arrange one for her.

"I specified, first thing, that she would want a rosewood coffin, and they said 'no problem' and took us in a room and showed us an arrangement of coffins – took us right over to the rosewood one and said this is what she would have," Kathleen says. She agreed. It was beautiful. It cost her $2850.

"They gave us a big book of flowers that go on top of the coffin," Kathleen adds "We found a really nice, big arrangement with all the colours my mum loved: pinks and mauves and purples." The flowers cost $375.

guardian funerals sign outside store front

Kathleen* used Guardian Funerals for her mother’s funeral so she could use the $1400 discount from her funeral fund membership. But she still spent $8050.

Beverley died in 2018, and her daughters went back to Guardian Funerals to handle the funeral. The staff said they no longer dealt with the coffin supplier that made the coffin they chose. Kathleen was sorely disappointed, but with the funeral four days away, she was also stressed and didn't want to argue. She accepted the brown coffin offered as a replacement, although, to her, it lacked the depth – in both colour and sentimental worth – of the original.

They had to choose flowers from a new book. None of the arrangements looked as nice or as large as the ones they had picked, so the funeral director said they would add more. On the day of the funeral, Kathleen was given an invoice charging her $55 for the extra flowers.

She came away from the experience disillusioned with the funeral industry, which, she says, seemed as though it was out to take advantage of grieving families.

The following month, her father died. His wife's niece, a celebrant, took care of the funeral. For Kathleen, it was an eye-opener. 

It was all very lovely when you're preorganising it, and then when the time comes – we weren't happy with what we saw

Kathleen*, Guardian Funerals customer

"My dad had the most beautiful rosewood coffin you could imagine," she says. When she saw it, she felt a pang of regret. 

"I know it sounds funny – I mean, because a coffin's a coffin – but my mum, that's what we had wanted for her and my dad couldn't have cared less," she says. "That's what brought it home to us that we should have insisted. I mean, what place like Guardian can't source a rosewood coffin?"

InvoCare, which has $563.6 million in prepaid contract payments held in funds, says prepaid products such as Guardian Plan offer "peace of mind". But family members of contract holders tell us a different story.

"It was all very lovely when you're preorganising it, and then when the time comes – we weren't happy with what we saw, but we thought we had no choice," Kathleen says.

Big bucks in prepaid funerals

The funeral industry is the real beneficiary of prepaid plans. When you factor in the future market share that they lock in – InvoCare has 93,000 funerals in the pipeline – they start to look more like a crucial product offering for companies, rather than for consumers.

InvoCare has its sights set on getting third parties – retirement villages, healthcare professionals, financial and legal advisers – onboard to spruik its prepaid wares. It's already been trialling a deal with Greenstone (the company behind Real Insurance and Australian Seniors Insurance Agency) whereby it directs people who don't want funeral insurance to Guardian Plan.

The aggressive marketing strategy is no surprise given that the prepaid funeral investments are rising at a higher rate than funeral costs. At its 2018 annual general meeting, the funeral giant said that better returns on the prepaid contract funds it manages are a major contributor to higher profits. InvoCare also made $1.8 million that year in trailing commissions – these are the ongoing payments it gets from the trust funds holding its customers' money. This makes prepaid contracts more profitable for InvoCare than funerals that are paid for when they're needed.

InvoCare has its sights set on getting retirement villages, healthcare professionals, financial and legal advisers to spruik its prepaid wares

That's probably why the multinational is eager to get customers to sign up at a younger age (to let their payments brew for longer in investment funds), and why its prime targets are the people coming in to organise a farewell for a loved one who's just died. 

InvoCare hopes to get one in every four of these mourners to enter into a prepaid contract for their own funeral, and staff are instructed to push the plans to meet sales targets. Customers' contact details are passed on to a Guardian Plan sales team, who ring up and give a prepaid funeral pitch. 

For those who would rather retain control over an investment made for a future funeral, a funeral bond might look like a better option. But even this seemingly straightforward product can be a source of confusion at a time of grief – as Julia Phillips and Lindsay Morton found out.

Funeral bonds: Lock in a funeral, lock out a family

Based on the Norwich Funeral Bond brochure their father kept, Julia Phillips and Lindsay Morton thought any funds that weren't used by his nominated funeral parlour would be returned to the estate – free for them to use for additional funeral costs. 

Their father, Michael Morton, had paid for a coffin, transport, a newspaper notice, staff to conduct the funeral, the required paperwork and the cremation of his body back in 1997. He died in 2018, and Julia and Lindsay paid $1350 directly to the Country Women's Association and a recreation centre for catering and venue hire. They also paid a further $1450 to Michael's nominated funeral home, William Barrett & Sons, for TV systems, DVDs and photos of the service, printing and additional newspaper notices.

The company's contract was with Michael while he was alive, but now his membership rights belonged to the business he'd assigned to carry out his funeral

However, a funeral bond, when used together with a prepaid contract, belongs to the nominated funeral director. This is what Michael had signed up for when he put $2870 in a funeral bond in 1997. 

By the time he died, more than 20 years later, the funds had doubled in value. But when Julia called Australian Unity, the company that managed the funeral bond, to find out how much money there was, she was told they couldn't disclose this information. 

The mutual company's contract was with Michael while he was alive, but now his membership rights and funds belonged to the business he'd assigned to carry out his funeral. Could she ask the funeral director about this, instead?

Julia and Lindsay say they asked the funeral parlour, William Barrett & Sons, repeatedly for documents to show the balance of the bond and a breakdown of funeral expenses that were covered.

The funeral home gave them a copy of the original cost breakdown that Michael signed in 1997 – but not the amount spent in today's prices – and an itemised invoice for extra services arranged after Michael's death.

Adrian Barrett, a funeral director with William Barrett & Sons, says the firm doesn't give details of the bond or a current breakdown of how the money is spent to families of those who've died because "our contract is with the bond owner and the mutual company".

"What we do with these funds is up to us, to provide the funeral set out in the contract – no matter whether that costs more or less than the benefit amount," he says.

Adrian says William Barrett & Sons made a loss after delivering the goods and services outlined in Michael's contract. "We would have lost out in this particular case, but that's the nature of prepaid funerals – the risk and reward lies with the funeral director," he says.

What we do with these funds is up to us, to provide the funeral set out in the contract – no matter whether that costs more or less than the benefit

Adrian Barrett, funeral director, William Barrett & Sons

Nevertheless, it frustrates Julia and Lindsay that this aspect of their father's funeral was closed off to them. They see it as a matter of transparency and accountability. 

"Somewhere in there, in the legalese, means that even if you're an executor, you have no access to the information – even if you want to find out how much money's there," says Julia. "And to me, that's wrong."

Lindsay says it's the principle, more than the money itself, that he takes issue with: "Where that money goes to – it goes into a black hole and you don't have any rights."

The head of Australian Unity's life and super division, Adnan Glinac, says the company's role is to keep its members' money safe until it's needed to pay for funeral costs, and not to scrutinise each claim against each prepaid contract.

"We have a very, very strong relationship between us and our funeral directors, so we rely on their services being provided," he says. Apart from routine spot checks, he says, "all of the documentation is logged on the system but not assessed for every single claim in a granular, itemised manner". 

He's careful to note that a prepaid contract is an agreement between a bond-holder and a funeral director. "We are not privy to that," he says.

coffin in back of hearse at funeral

Some people are caught off guard by extra charges that aren't covered by their loved ones' prepaid contracts.

Another provider of funeral bonds, the Foresters Friendly Society, is more emphatic on this point. The disclosure document for bonds held in the State Trustees Funeral Fund, which it manages, states explicitly that the organisations' only obligation is "to pay upon death the balance of your investment to the funeral director to whom you have assigned your investment". 

As for how the funeral director spends the money, neither Foresters Friendly Society nor State Trustees "accepts any responsibility or liability" to ensure that prepaid contracts are honoured.

Part 4 of our investigation: The changing landscape

Schemes allowing a funeral to be paid in advance may bring comfort to some, but they can easily go the other way. They're also part of a well-established system for maintaining the high cost of funerals. 

For those turning away from prevailing practices that promote spending as the best way to show respect for the dead, some in the industry are offering alternatives. The final part of our investigation will explore these.

* Some names have been changed.

We care about accuracy. See something that's not quite right in this article? Email us at factcheck@choice.com.au or read more about fact checking at CHOICE.

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