Dead loss: Is funeral insurance worth the money?

Last updated on April 22nd, 2025

Dying isn’t something any of us like to think about it, let alone discuss, but it might be worth asking exactly what funeral insurance is and whether it’s for you.

Funerals can be very expensive. According to Canstar, it can cost anything from $4,000 to $15,000, depending on the ceremony, and insurers know you won’t want to leave your loved ones with a hefty bill as well as a heavy heart. But is funeral insurance worth it?

What is funeral insurance?

Funeral insurance is a type of life insurance that pays out a lump sum when the policyholder dies, to help cover funeral costs. The benefit amount is usually between $5,000 and $15,000, depending on the insurer and the level of cover you choose.

 

 

It can be an important part of ensuring that your final arrangements are taken care of. The cost of premiums depends on different factors:

• • Age of the insured
  • Smoking history
  • Payout amount
  • Type of premium – stepped or level
  • Insurance provider

For example, if you’re aiming for a $10,000 insurance cover and you're 50 to 54 years old, you could be paying $52.96/month if you’re a non-smoker and $54.47/month if you smoke. If you’re a 55 to 59-year old non-smoker, your average monthly premium might be $64.60, or $66.78 if you’re a smoker.

Because there are many factors that go into calculating a funeral insurance premium, it’s always a good idea to compare quotes from different providers to find the best deal.

The Australian Securities and Investments Commission (ASIC) also highly recommends that you read any important documents before making a decision.

Do I need funeral insurance?

One of the main reasons people take out funeral insurance is because they don't want to leave their family with a big bill when they die. According to Moneysmart, a funeral will include the following costs:

• • Funeral director fees
  • Transport
  • Coffin
  • Death certificate
  • Permits (for example, for a burial at sea or on private land)
  • Burial or cremation
  • Cemetery plot
  • Other expenses such as a celebrant or clergy, flowers, newspaper notices and the wake

 

 

Funeral insurance is obviously not going to benefit you, so you don’t need it. But you may decide your beneficiaries, such as your partner or children, do as they won’t be able to afford to pay for your funeral without it.

It forces you to save

Funeral insurance forces you to save for a major expense, even if it is on behalf of your beneficiaries rather than yourself. In many cases, people end up going into debt or putting off other important arrangements to pay for their family member’s funeral. Funeral insurance helps provide peace of mind in knowing that everything has been taken care of. Unlike your own savings, however, this one can't be dipped into any time – it is only paid out on your death.

It’s easy to access

Funeral claims don't take long to process, unlike other life insurance claims, which can take weeks or even months. Your family can generally get the benefit paid into their account within one to two days of providing all the correct documents, including the death certificate, giving them plenty of time to pay for funeral expenses.

What are the pitfalls of funeral insurance?

Funeral insurance premiums are based on your age, so they increase as you get older. This means that the policy can become more and more expensive as time goes on. Taking out funeral insurance as a senior will also cost more. If you end up on a pension, you might not be able to afford it. There are other things to consider before taking out funeral insurance.

There are no refunds

Funeral insurance is not a savings plan. If you’re not able to keep up with payments, your policy will be cancelled and you won’t get a cent back. Refunds are only available within the 30-day cooling-off period. If you’d like to cash in your policy, you have to reach the early payout date first, which is usually when you’re 80 to 85 years old - and this is only offered by some insurers. It is also likely to be less than the total amount you paid.

 

 

No payouts in the first 12 months

You will not be covered for the first year of your policy (unless your death is determined to be an accident). If you die within the first 12 months, your beneficiary won't receive a cent.

You could end up paying too much

You could end up paying more in premiums than you would have if your family had just paid for the funeral out of your estate. It all depends on how long you live. Many insurers cap payments after 80 or 85, at which time you may choose to cash out for a lesser amount.

It can affect your pension

The early payout option may have implications for receiving the age pension and other government benefits. The additional incentive derived from taking advantage of the option may be included in your assessable income.

What are alternatives to funeral insurance?

While it is easy to understand how older people are tempted to sign up for funeral insurance, it is often a bad decision for their circumstances.

 

 

It might be better to sit down with your loved ones and look for other ways to pay for a funeral. It may be that your life insurance and/or superannuation fund is a better option, though bear in mind they take longer to pay out.

Or you might consider a different type of funeral insurance, more commonly known as a funeral plan. This enables you to pre-pay for your funeral ahead of time, locking in your funeral at a set price. You can pay in full or instalments. Funeral directors must put your money into a registered fund in the states, to protect you if they go out of business, but the same protections do not apply in the territories.

If you have taken funeral insurance out and are running into problems, contact the Australian Financial Complaints Authority to find out what steps to take. Or make a complaint with us and we’ll help you handle it.