I do not know about you but recently when I sat down to watch an hour of day time TV (yes I watch day time TV sometimes), I was inundated with 5 different ads for funeral insurance. What made me worried was thinking about who would be watching this and how vulnerable the ads made these people feel.
Costs of a funeral
There is no doubt that funerals can be very expensive. Depending on the kind of service you want it can range anything from $4000 upwards to $15,000. There are costs such as funeral director fees, transport, coffins, death certificate, burial/cremation, cemetery plots and other expenses such as flowers, obituary, wakes and so on. Finding this money on short term notice can be a struggle for many people.
What is funeral insurance?
Funeral Insurance works much like any other insurance. You pay a fortnightly, monthly or annual premium to cover you for a set amount upon your death so your family can afford to pay for funeral expenses. Most companies allow guaranteed cover for Australians aged 18-79, with ability to choose the amount you would like to cover usually in the range of $300-$15,000. Many do not require any medical tests and there are often options to have whole family cover.
Does it work out to be cheaper with funeral insurance?
I did a quote for one company, based on my age at 27 I was quoted a monthly premium of $25.55 per month for $15,000 worth of cover. Now let’s say I live to 84 (which is the ABS average life expectancy of women in 2008-2010), I would pay a total of $17,476. Now that is if my premium stayed at $25.55 which it will not. All insurances have an indexation factor (usually anything up to 10%) applied each year that you get older, because the risk of you passing away or getting ill increases. For instance if I changed my quote to reflect an age of 60 it increased to $54.48.
What does this mean?
I’m not a mathematician but even with the premium on the first amount I will still end up paying more than what I would for $15,000 funeral. That being said it may give you piece of mind knowing that your family does not have to fork out the cost when you die. But you need to know what you’re signing up for. Generally if you die within the first year you with be covered for accidental death only.
You need to also think about whether you can afford to be paying for this for the rest of your life because in most cases if you stop paying you will lose any cover you had accrued. Also investigate how quickly your family can access the money after a claim being made. Some companies have 24 hour standards which is important when funerals occur within one week of passing.
There are a range of other options you can investigate to pay for your funeral costs. Obviously you can set up a savings account or Term Deposit to reach a goal you would like. Make sure you inform your family. It is also probably a good idea to have this account as a joint signatory so that they can have immediate access to funds rather then it going to your estate which can be a timely process. Some places also offer funeral bonds which can be a lump sum or regular investment amounts.
There is also the option of a prepaid funeral which even allows you to make all the arrangements if that is your wish. Beware here- the internet is rife with various scams that have occurred with prepaid funerals so make sure to do your research. Also investigate built in options with your Life Insurance policies. Some companies have a proviso of paying in advance (ie before the claim is finalised) around $25,000 in order to help with things such as funeral costs.
Funeral Insurance can give you peace of mind
Whatever options you decide to go for make sure you investigate all the terms and conditions. Do work out a basic estimation of your total costs and really think about whether this is something you can afford. Funeral Insurance can be a good option if you are worried about your family upon your passing. Just make sure you do not get sucked into those ads and on a whim call up and apply without really thinking about all your options and what is involved.
Because I did the quote mentioned above, my mobile has been off the hook with phone calls from them trying to get in touch with me – so funeral insurance people – if you are reading this, I am not a warm lead!