How to pay for a funeral: funeral costs in Australia

1. PREPAID FUNERALS

• A funeral that is planned, contracted and paid for in advance with a selected funeral director. It can be paid for in instalments (sometimes called a funeral plan).
• Everything is taken care of in advance - deceased’s family is not financially burdened or unnecessarily stressed by having to make difficult decisions about the funeral when the time comes.
• Cost is locked in at today’s prices, with no more to pay regardless of future price increases.

2. FUNERAL BOND

• A managed investment that helps individuals save for the cost of their funeral. There are 2 common types:
• Monthly instalments funeral bonds: contribute minimum instalments each month to be invested along with other funds already paid.
• Lump sum funeral bonds with optional top-ups: contribute a minimum lump sum and top up any time.
• Funeral bonds let allow for planning financially for a funeral without having to plan all of the details (which many find confronting and emotionally harrowing).
• However, there is no guarantee that the amount saved and earned under the bond will be sufficient to cover all funeral expenses when the time comes.

3. FUNERAL INSURANCE

• Insurance policy that pays out a lump sum upon death to cover funeral costs.
• Covered for the full insured amount from day one, with the exception that only accidental death is covered in the first 1-2 years of the policy.
• 2 major risks:
• Increasing premiums – Insurance can seem affordable at first, but as premiums increase, they can become unaffordable. This may also mean paying more in premiums than the cost of the actual funeral.
• Forfeited policy - Policies can be cancelled when holder misses or cannot afford to make a payment. All premiums paid until that point are lost.
• Before buying funeral insurance. you must be 100% sure you will always be able to cover the cost of premiums until death, factoring in inflation and price rises over time.
  
  

4. PERSONAL SAVINGS/FUNDS

• Pat for a funeral by using cash from a bank account, credit card, sold assets, etc.

5. DECEASED ESTATE

• If sufficient funds are available, funeral expenses may be paid out of (or reimbursed from) the deceased’s estate.
• It is common for the deceased to specify in their will how their funeral costs are to be paid.
• Where an individual takes responsibility for organising a funeral, it is important that they do not pay for a funeral they can’t afford on the assumption that they will recover the money from the estate. The costs of a funeral cannot be recovered if there are inadequate funds in the estate, or if the deceased has no estate at all.

6. SUPERANNUATION

Superannuation may be used to pay for funeral expenses in 2 different ways:

1. In certain (rare) cases, a person may be granted early access to their own superannuation fund on compassionate grounds in order to pay for a family member’s funeral - usually occurs where they have no other way to pay for the funeral. It is only permitted to withdraw an amount that covers reasonable costs such as the funeral service and headstone, and it is also possible that accessing superannuation early will have an effect on other payments received, such as child support and/or Centrelink.
2. In other cases, where the deceased passes away before they retire, a death benefit payment is made from the deceased’s superannuation fund to eligible beneficiaries or the deceased’s estate. If paid to the deceased’s family members, they can put this payment towards the cost of the funeral.

7. GOVERNMENT ALLOWANCES

• There are a number of government allowances/payments available to people in particular circumstances to help pay for the cost of a funeral - e.g. bereavement allowances, widow allowances.
• Most state governments in Australia have additional schemes to help in-need families with funeral costs. Generally, these programs require the family to show that they are unable to pay for funeral costs, and a fairly strict assets test that must be satisfied.

8. FUNERAL LOANS

There are 3 main ways to borrow money to pay for a funeral:

1. Personal loans: Money borrowed from a financial institution for a personal expense. Generally a fixed amount to be regularly repaid over set term.
2. Payday loans: High cost, short-term loans which often receive same day approval even with a bad credit score - very high interest rates and expensive default fees.
3. Buy now pay later finance: A type of loan that enables customers to purchase funerals on interest-free finance - often with no extra interest/cost.

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