Why it pays to consider the cost of your funeral

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Death is always an awkward topic, both to write and to talk about. It happens to all of us eventually, and even before then we’ll likely have to confront it through the death of a family member, a loved one, or perhaps a pet.

That awkwardness is probably the reason people don’t tend to think about their funerals until quite late in life when death feels more pressing. But, in reality, we could die at any time (sorry, sorry, I know this is grim), so planning only when it feels just around the corner doesn’t always make the most sense.

It’s a grim subject, but if you put off thinking about your funeral you could leave your loved ones with a financial burden.Credit: Michael Howard

When it comes to planning, there are the obvious things such as what songs to play, whether you’d like to be buried or cremated, who’s going to speak, etcetera. But there’s also another key consideration: cost.

What’s the problem?

The average cost of a funeral in Australia is between $4000 to as much as $15,000, depending on how elaborate your service is and if you opt to be buried or cremated. That’s a whopping amount of money, especially for something that can come out of nowhere (again, sorry), and a 2021 study found 26 per cent of Australians who organised a loved one’s funeral experienced some form of financial hardship after paying for it. Additionally, more than two thirds of people believe funerals are overpriced.

When you think about it, this all makes sense, with funerals having the triple whammy of being (at times) unplanned, complicated, and extremely difficult to DIY thanks not only to various regulations, but our general lack of desire to be too closely involved with death.

What you can do about it

To combat this, financial firms have come up with a range of offerings to help people afford their funerals. What are they? Are they worth it? Here’s what you need to know:

• Funeral insurance: You know the insurance you pay each month for your car? Funeral insurance is similar, but you’re paying for your inevitable death. It costs about $50 a month if you take it out when you’re 50, but quickly increases in cost as you get older. Someone aged 75 or over can expect to pay $150 a month for standard funeral insurance, but it can cost more. The way it works is pretty simple: you nominate a beneficiary who is paid out the amount you nominated through your insurance on death (usually between $3000 to $15,000).

• Is it worth it? While funeral insurance may suit some people, generally it’s an inefficient way to cover your funeral costs. As the government’s MoneySmart website warns, it can cost a lot in the long run, and depending on when you take it out, what you pay could exceed the costs of your actual funeral. The higher premiums as you age can also significantly eat into your income, especially if you’re reliant on the age pension. Most policies will not cover death for the first 12 months of cover, and can have other exclusions for terminal illnesses. Payouts from life insurance, which many Australians have provided through their super funds until age 70, can also cover funeral expenses.

• What other options are there? If you’re not so keen on shelling out for insurance each month, you could look into funeral bonds instead. These are an investment product that allow you to contribute either a lump sum or regular monthly payments, which is held in your name and withdrawn on your death. The funds can only be used to pay for your funeral, with any excess going to your estate. As they are an investment, they’ll grow in value (at about 4-7 per cent a year on average), making them more appealing than just paying for insurance or putting money in a savings account. Jason King, executive adviser at Viridian Financial, says it’s also important to note funeral bonds up to $15,000 are ignored for age pension asset and income tests. “A funeral bond can be a final act of love, providing peace of mind to your family and friends by ensuring they are not left with the financial burden of funeral expenses,” King says.

• Other things to consider: A final option is to prepay your funeral, which locks in the price now and can be generally cheaper as you’re allowed the time to shop around and compare prices, rather than your family scrambling to find a director after a death. Whatever option you do, or don’t, choose, ensure you at least have a clear plan for your death, as a 2019 CHOICE investigation found the funeral industry was opaque and unnecessarily expensive. Getting a handle on it now can at least alleviate some of the cost pressures, and stress, when you do inevitably pass away.

Advice given in this article is general in nature and is not intended to influence readers’ decisions about investing or financial products. They should always seek their own professional advice that takes into account their own personal circumstances before making any financial decisions.