What Does Funeral Insurance Cover?

Find out all you need to know about funeral insurance and what it covers here with Savvy.  

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, updated on August 29th, 2023       

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What does funeral insurance cover

Are you wondering what exactly funeral insurance covers? Funeral insurance is a financial product designed to provide a lump sum payout when the policyholder dies. It offers the possibility of financial assistance to family members at a very difficult time when someone close has just passed away.   

It's important to understand what this insurance offers, as it directly impacts your family's financial well-being when you pass away. Although Savvy doesn’t offer comparisons between funeral insurance products, we do offer free comparisons for various types of life insurance. In this guide, we'll explore the scope of cover that funeral insurance typically offers.  

What does funeral insurance cover?

Funeral insurance ensures a lump sum benefit is paid out to the policyholder’s named beneficiary when the policyholder dies. The amount of the lump sum will depend on the benefit amount agreed upon when the policy was taken out, typically between $3,000 and $15,000.  

The intent of the lump sum is to assist with the costs involved in holding a funeral. However, there are no strict specifications about how this benefit amount must be spent. Beneficiaries do not have to submit receipts to the insurance company, so how the benefit money is spent is up to the family or loved ones. 

Additional benefits of funeral cover 

However, in addition to paying out a lump sum after the policyholder dies, funeral insurance can offer additional cover too. This can include:  

  • Accidental death: Most funeral insurance policies only cover accidental death during the initial 12 months of the policy. After this initial period, coverage extends to death from any cause (sometimes excluding suicide.) In cases of accidental death, some policies provide an additional increased payout amount offering extra financial support. For example, this may include a payout two or three times the original agreed benefit amount in case of accidental death. 
  • Terminal illness: Funeral insurance often provides coverage if the policyholder is diagnosed with a terminal illness and has a life expectancy of less than 12 months. In such cases, the policy's benefit amount is paid out at the time of diagnosis to help cover medical and end-of-life expenses. This cover can offer valuable financial support following a devastating diagnosis, potentially allowing policyholders to pay for their medical needs and make necessary funeral arrangements prior to their passing. 
  • Accidental serious injury: Funeral insurance policies may also include accidental serious injury coverage at no extra cost. This coverage typically offers a cash benefit equal to two or three times the funeral cover benefit amount in the event of an accidental serious injury, such as the loss of a limb or serious spinal injury. This coverage may expire after a certain age, for example after the policyholder's 75th birthday. The amount paid out for serious injury is a strong comparison point when comparing funeral insurance policies.  
  • Family cover: Funeral insurance doesn’t have to cover a single person. It’s possible to get a family funeral insurance policy which covers a couple or multiple members of a family. Such policies typically cost more than a single policyholder agreement, but less than if each family member were to take out a policy of their own. It can also include cover for children aged under 18.  

Understanding what a funeral insurance policy covers is essential for making informed decisions about your end-of-life financial planning.  

What are the typical costs of a funeral in Australia?

Typical funeral expenses in Australia are: 

  • Funeral notification: Placing a notice in the newspaper to inform the community about the death and upcoming funeral. Costs can range from $200 to $300+. 
  • Transport: This covers hearse hire and transferring the deceased to and from the funeral home. Typically, it costs between $500 and $1,500. 
  • Coffin: The casket is a significant expense in the overall cost of a funeral. It can range from $1,000 to $10,000. 
  • Funeral service: This is the most significant part of the funeral process. Funeral directors handle all legal tasks, flowers, and cemetery arrangements. It usually costs between $2,000 and $3,000+. 
  • Burial and headstone: Choosing a burial plot and a headstone can be expensive. High-quality plots can cost a lot, and even the smallest headstones may start at four figures. Costs can exceed $5,000. 
  • Cremation: Cremation services are generally cheaper than burials, but they still come with substantial costs, averaging around $4,000+. 
  • Urn: Urns, which are used for storing the ashes after cremation, vary in price. Higher-quality options can be costly, up to $500 or more, while budget-friendly choices start at around $50. 

Please note these are ballpark figures, and actual expenses may vary depending on your location, the choices made, and many other factors. 

Can funeral insurance cover the cost of airfares for family members to fly in for the funeral?

Funeral insurance is primarily designed to provide a lump-sum payout to cover funeral-related expenses, such as the funeral director’s fees, the coffin, the burial or cremation service, the cemetery plot, and other funeral-related costs. However, it is up to the beneficiaries to determine their family priorities. 

If the attendance of a loved family member who is overseas at the time of death is considered a priority, then the cost of airfares may be considered an appropriate way to spend the funeral benefit. All families and relationships are different, and so each family naturally has its own requirements for attendance at a funeral.  

How much does funeral insurance cost?

Funeral insurance costs are not fixed; they depend on factors like your age when you take out the policy, the coverage amount you require and other individual variables. On average, monthly premiums for funeral insurance typically range from around $50 to $150. Here's a breakdown for a non-smoker with $10,000 coverage:

  • Ages 50-54: Approximately $53
  • Ages 55-59: Approximately $65
  • Ages 60-64: Approximately $80
  • Ages 65-69: Approximately $103
  • Ages 70-74: Approximately $146

These figures are averages; actual premiums may differ based on your chosen insurer and specific policy terms.

More of your frequently asked questions about what funeral insurance covers

Can funeral insurance money be used to pay debts when someone dies?

Yes, funeral insurance money can be used to pay off a variety of debts when someone passes away. It's a flexible form of insurance that helps cover the cost of a funeral, but can also extend to settling any outstanding financial obligations.  

Is it possible to cash in a funeral insurance policy early?

Early cash-in with a funeral insurance policy allows you to cancel your coverage at a specific age, often around 80 or 85, and receive a lump-sum cash payment. This payment may represent a higher portion of your total benefit amount (for example 120% of your agreed benefit amount) and can help cover your immediate financial needs or expenses.    

Can I take out funeral insurance for my parents?

Yes, it is possible to take out a funeral insurance policy for your parents, but it must be done with their knowledge and consent. The insurance company will notify the parents that funeral cover has been taken out on their behalf. As the person who has taken out the insurance policy, you will be responsible for paying the insurance premiums, and will also be the automatic beneficiary of the policy unless you nominate another person for this role.  

When does funeral insurance cover end?

Most policies offer cover until a person reaches 100 years of age. However, once you reach the age of either 80 or 85, some policies no longer require premiums to be paid as long as the policy has been in place for at least five years. Early cash-in options can also apply once a person reaches the age of either 80 or 85, enabling a policy to effectively be ended and a cash benefit paid out.  

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