Funeral Insurance, Funeral Bonds, and Prepaid Funerals

Planning for a funeral is not just an emotional decision—it’s a financial one. In Australia, three of the most common ways people prepare are funeral insurance, funeral bonds, and prepaid funerals.

Each option serves a different purpose, and understanding the benefits and limitations of each can help families make informed, confident decisions.

Here’s my thoughts about each option. I’m not a financial advisor so please don’t take this as financial advice. I strongly recommend speaking to your financial advisor before making any choices, particularly due to the potential tax implications.

Funeral Insurance

Funeral insurance is a policy where you pay regular premiums (weekly, fortnightly, or monthly), and your family receives a lump sum payout when you pass away.

We usually consider insurance for things that ‘may happen’ and would cause you financial strain such as health insurance or home and contents insurance. Death is inevitable so it seems to me an unlikely ‘product’ for insurance business, however if there’s an opportunity to make money, someone will sell it.

I don’t believe funeral insurance is evil, but we need to understand what it is and what it isn’t. It is not a saving plan.

Rarely do we add up all the money spent on home insurance and wonder why we spent all that money when our house didn’t burn down. For some reason, we think about the money we spend on funeral insurance as if we want to hurry up and die before we pay more in fees than what we’ll get back in return.

Funeral insurance does offer financial support for families to cover funeral expenses or debts and it can be paid for on a monthly basis. Like health insurance, premiums will often increase as you age (as you’re more likely to need the insurance).

Funeral Bonds

A funeral bond is a dedicated investment or savings product where money is set aside specifically for funeral expenses and only accessed after death.

You contribute over time, building a fund specifically for funeral costs. Money can only be used for funeral expenses, ensuring it serves its purpose. In many cases, funeral bonds are exempt from asset tests up to certain limits (speak to your financial advisor about the suitability of this product). Once your money goes into a funeral bond, it cannot be used for any other purpose.

Prepaid Funerals

A prepaid funeral allows you to plan and pay for your funeral in full, in advance, locking in both the cost and the arrangements. Your money is invested and any interest gained offsets the inevitable rise in inflation. You plan all the details of your funeral and pay for it at today's prices. Again, get some professional advice because often your pre-payment is not counted in the assets test (important for pension planning). Once your money is invested, it cannot be accessed for any other uses.

I’m in favour of people planning their own farewell service, and paying for it in advance makes sense to me, which may include a combination of pre-paying and funeral bonds. In my opinion, they are better products than funeral insurance.

If you would like to speak about what options are available, please speak with your financial advisor and give me a call.