Paying for your Funeral and the Options available
In this section we consider the costs typically involved in a funeral and how they are best met - including dedicated savings, prepaid funerals, funeral bonds and funeral insurance.
Whilst the value of your estate, including superannuation and life insurance, will be available to pay for your funeral, many individuals are aware that any payment can take some time to be made available (often requiring probate be issued first), and may want to make some provision for funeral costs - rather than have those costs paid by friends or family and reimbursed a later stage.
The cost of a funeral can vary enormously, from basic cremation through to very extravagant ceremonies involving ornate caskets and memorial headstones - ASIC suggests a range of between $4000 and $14,000 as indicative of the normal range of costs. Although now out of date, this is an indication of the type of costs involved in an adult funeral - prepared by the New South Wales Government in 2011 - provided in thetable below. Consider also whether you or your loved one will actually want a formal ceremony - it is becoming much more common for individuals to specify a direct cremation, where a body is sent directly for cremation from the hospital with no attendance or ceremony. The family can then make separate arrangements for the assets to be scattered later as they wish - this is ordinately simpler and less costly than other arrangements.
The costs of a funerals will also vary considerably depending on the provider. Like many industry segments in Australia there is heavy concentration within the sector and debatable competition. Many brands in fact have the some owner - for example, the leading company, Invocare, operates under more than 30 different brands of funeral homes including White Lady, Simplicity Funerals, Value Cremations, Guardian Funerals and Le Pine.
|Service fee||from $2000|
|Removal of body||$300|
|Advertising (death and funeral notice)||$285|
|Extra cars (per car)||$330|
|Coffin/casket||from $800 to $10,000+|
(includes opening and may include plaque)
|single or double from $3500+|
|Re-opening fee||from $1800|
|Certificates for cremation x 2||$185|
|Cremation fees (includes use of chapel)||$950|
The simplest way of providing for funeral expenses, is to establish a dedicated savings account or term deposit which is sufficient to cover any requirements. The problem with this approach is that the account will form part of your estate, and therefore the money may not be available to pay for the costs, but only to reimburse expenses already paid.
Prepaid funerals involve you paying for your funeral in advance, having agreed with a funeral director exactly what your funeral will entail in terms of services provided. You will normally be able to choose to pay in one lump sum, or in a number of instalments. As we mentioned earlier, funeral costs can vary considerably between funeral directors, and you should seek quotations from at least three providers. You need to give consideration to a few factors before proceeding with this approach.
Firstly, your circumstances can change very considerably in what can be a period of 10 to 30 years - for example you may move interstate are overseas - and you should be very clear in advance about your ability to cancel the arrangement, and what reimbursements would be available, if any. Portability will often be available within larger networks of funeral directors, but not transferrability between different directors.
Secondly, you need to investigate how these types of funeral are regulated in your state or territory. In New South Wales for example, prepaid funeral funds must be invested into secure investments, which provide you with protection against the individual funeral director going broke, and cooling off periods may apply.
Assets Test Treatment: The amount that you prepay to a funeral director is not included in the Age pension assets test - there must however exist a contract which stipulates the services to be undertaken and provides that no additional expenses need to be paid.
Some financial organisations, such as insurance companies and friendly societies, offer investment bonds tailored to saving for a funeral - with funds only being available after your death or to pay for a funeral. Both funeral bonds and funeral insurance are financial products regulated by ASIC.
Note that funeral bonds can usually be used to pay for a funeral with any funeral director, giving you a greater degree of portability - although bonds cannot be normally be cashed in early.
Bear in mind that this is an investment product, and that somewhere within the product you are paying for a raft of costs, which will include account costs, investment and marketing costs and probably commission to the funeral director who introduced you to the product. You have also not "locked in" the full costs of the funeral; it depends on how your funds perform in the intervening period between your taking out the bond and the date of your funeral.
Assets Test Treatment: The amount that you invest in a funeral bond and is assigned to a funeral director is not included in the Age pension assets test. There must however exist a contract which stipulates the services to be undertaken and provides that no additional expenses need to be paid. If a bond is not assigned to a funeral director the value of up to 2 bonds will not be counted, provided the following 2 criteria are met:
- you do not also have prepaid funeral expenses, and
- the amount invested in the bonds to be exempted does not exceed the Funeral Bond Allowable Limit ($12,500 as 1 July, 2016)
A number of insurance companies offer policies designed to cover funeral costs. These policies involve the insured person paying a regular premium based on a benefit amount they have chosen - such as $5,000, $10, 000 or $15,000 - based on the type of funeral they would like to cover. On their death, money goes to a nominated beneficiary who can use the money as they wish. Full cover is normally provided immediately for accidental death, with a waiting period applying to death from any other cause.
The insurance premiums paid with this sort of insurance are normally "stepped", which means they increase with age (reflecting the extra risk of your dying to the insurer) and with some amount reflecting inflationary increases. As a consequence, the premiums can increase very considerably over time, and it is not abnormal for this type of insurance to lapse, simply because individuals can no longer afford the additional costs. In those circumstances, you are unlikely to see any return of premium.
This is a very market-driven product, heavily advertised, and although it might afford individuals additional flexibility, they are again purchasing a product within which there are considerable marketing, administrative and commission costs attaching. Consider very carefully whether there is value in this product for you, whether you can maintain (increasing) premiums, and if the payment of a prepaid funeral by installments may not be a better fit. Maintaining your life insurance may be a cheaper and more effective way of providing funeral insurance, although it is typically subject to age limits.