Prepaid funerals vs funeral insurance: an honest comparison

Two products promise to spare your family funeral costs: prepaid funerals and funeral insurance. They sound similar. They are not.

How a prepaid funeral works

You plan the funeral you want with a funeral director, and pay for it at today's price — in full or by instalments over a few years. The money goes into an independent, government-regulated funeral fund, not the funeral director's pocket, and is released only when the funeral is delivered.

Once paid, it's done. Prices can rise for thirty years and your funeral is still covered. In most cases a prepaid funeral is also exempt from the age-pension assets test.

How funeral insurance works

You pay premiums — often monthly, often rising with age — for a payout when you die. If you live a long time, total premiums frequently exceed the payout several times over, and if you stop paying, you usually lose everything paid so far.

Consumer advocates have criticised funeral insurance for years for exactly this shape. It can suit someone who genuinely cannot pay a lump sum and expects to hold the policy briefly. For most people, it is the more expensive path.

Questions to ask before signing anything

• Where is my money held, and what happens if the funeral director closes?
• What exactly is included — and are cemetery or crematorium fees covered or estimated?
• What happens if I move interstate or want to change details?
• What are the cooling-off and cancellation terms?
• For insurance: what will I have paid in total by age 85?

We sell prepaid funerals, so read this with that in mind — then check independent sources such as Moneysmart. We would rather you compare honestly than sign quickly.