Do I Need Funeral Insurance?
Daytime TV is saturated with advertisements for funeral insurance. They warn of the significant financial impact that organising a funeral can have on your loved ones when you pass away. They also argue that insurance is the only protection for families. But is that true? While funeral insurance might be appropriate in some circumstances, we at Hetherington Funerals believe a Funeral Bond is the best way to financially prepare for the funeral.
What is Funeral Insurance Exactly?
Funeral insurance is a financial product and essentially isn’t very different from life insurance except the cover is often for a much lower amount. The benefit paid upon your death comes in cash. So, in reality there is no way to ensure that it gets used for the funeral. In addition, if you have life insurance, taking out funeral insurance is usually unnecessary as many life insurance policies feature a funeral benefit.
Depending on the circumstances, you may also have a funeral benefit through the Department of Veteran Affairs, your superannuation, or Centrelink. Funeral insurance may be suited to people over a certain age who are not eligible for life insurance, such as the unemployed, retirees without life insurance and those with pre-existing conditions who aren’t eligible for life insurance. However, in most cases the costs outweigh the benefits.
Problems with Funeral Insurance
While more consumer-friendly funeral products have gradually entered the market, funeral insurance is generally steeped with problems, including:
- Stepped premiums that increase as you get older. This makes it increasingly difficult to afford on a fixed income.
- You can end up paying more in premiums than the value of the funeral cover
- If you stop paying premiums, you’ll lose coverage altogether, and you’ll lose whatever funds you put into the insurance
- If you cancel the policy, you generally don’t get your money back
According to Choice Magazine, 16.5 per cent of all funeral policies taken out in 2014 were cancelled, one in three of those by the insurer due to the consumer failing to pay premiums. According to a report published by ASIC in 2015, almost 55 per cent of policy cancellations for funeral insurance occur in the first year of having the policy. This suggests that it’s common for people to take out funeral insurance only to find they cannot meet the steeped premiums or wind up dissatisfied with the product for other reasons.
Funeral Bonds — The Better Option
If you don’t have life insurance or your policy doesn’t include benefits likely to cover funeral expenses, there is another (better) option — a Funeral Bond. These are administered by a trust fund manager like Funeral Plan Management and offer a range of benefits:
- A guaranteed capital investment
- Your money held in your name and remains yours (unlike a prepaid arrangement where the Funeral Director has the money in their own name)
- Once you have sufficient funds, you stop payment and the funds sit there and wait till the time of the claim. And while they wait, they earn interest.
- Tax benefits, as your bond is not counted as an asset
A Funeral Bond allows you to be financially prepared for your funeral without the ongoing costs associated with funeral insurance.
Personalised Funeral Services in Western Australia
Whether you need to plan a funeral now or wish to think about the future, Hetherington Funerals are here to help you. Our compassionate and professional team have the knowledge to help you understand the different burial and cremation options available and to help create a personalised, meaningful funeral.