Funeral Insurance in Australia: Is It Actually Worth It?
Funeral insurance pays a lump sum when you die, but premiums can end up costing more than the payout. An honest guide, plus better-value alternatives.
By Timothy Hirou GaschereauPublished 10 min read
Nobody wants to sit down and think about their own funeral, but the bills do not care, and your family will be the ones scrambling if there is no plan. That is the gap funeral insurance promises to fill, which is why you see it advertised constantly to older Australians.
The catch: ASIC Moneysmart, the government's financial guidance service, is notably cautious about it, for good reason. It is not a scam, but it has structural features that can leave you badly out of pocket. Here is how it works, the real risks, and the alternatives that are usually better value. General information only, not advice, and we do not name or recommend specific products.
🎯 The essential: Funeral insurance pays a lump sum (usually $5,000 to $15,000) to cover your funeral. The problem: most policies use stepped premiums that rise as you age, so many Australians pay more in premiums than the policy ever pays out, and if you stop paying you usually lose everything (no refund). Most policies also have a waiting period where only accidental death is covered for the first 1 to 2 years. A funeral bond, prepaid funeral or dedicated savings account is often better value. If you do buy, insist on level or capped premiums and read the PDS.
What funeral insurance is
Funeral insurance pays a lump sum to your family when you die, specifically to cover the funeral, usually $5,000 to $15,000. You pay premiums fortnightly or monthly, generally for as long as you live. A big selling point is no medical exam, just a few health questions, which is why it is marketed to older Australians and people with health conditions who may not qualify for standard life insurance. The distinction matters: life insurance pays a large benefit to replace income or clear a mortgage; funeral cover is small and specific.
What a funeral actually costs in Australia
Before sizing any cover, know what you are covering:
- Direct cremation: roughly $3,000 to $5,000
- Cremation with a service: roughly $5,000 to $9,000
- Standard burial: roughly $10,000 to $15,000+
ASIC Moneysmart puts the range at about $4,000 for a basic cremation up to $15,000+ for an elaborate burial. A $10,000 target covers most funerals comfortably today. The real question is what the cover costs you over time.
The big problem with funeral insurance
Most policies use stepped premiums: the amount rises each year as you age, and often further for inflation. ASIC Moneysmart cites a real case: a woman took out cover at 58 paying $20 a fortnight; by 71 it had doubled to over $40, and after 13 years she had paid more than $10,000 for a $10,000 to $15,000 benefit, with premiums still climbing.
The Banking Royal Commission found many older Australians on fixed incomes had paid tens of thousands in premiums for $10,000 to $15,000 benefits. And here is the trap: most funeral insurance has no surrender value. Cancel or miss payments and you lose every dollar paid in, with no refund and no payout. For someone watching premiums climb past what they can afford, that is a painful bind.
Key features and traps to check
- Waiting periods: most policies only cover accidental death for the first 12 to 24 months, so an illness-related death in that window may pay nothing.
- Stepped vs level/capped premiums: stepped premiums rise with age; level (fixed) or capped (stop rising, or stop being payable after a set total) are much safer.
- Benefit cap vs premium cap: different things. A benefit cap limits the payout; a premium cap limits what you pay in.
- Inflation: a $10,000 benefit today may not cover a funeral in 15 to 20 years.
- Cancellation terms: check the grace period and whether there is any surrender value (usually none).
Alternatives that are often better value
The best option depends on your health, savings and situation, but these usually beat funeral insurance:
| Option | How it works | Best for |
|---|---|---|
| Funeral insurance | Premiums for life; lump sum on death | Those who cannot save or qualify for other cover |
| Funeral bond | Invest a capped amount, held in trust, released on death | Age Pension recipients wanting assets-test efficiency |
| Dedicated savings account | Save into a separate earmarked account | People able to save regularly |
| Prepaid funeral | Pay a funeral director in advance, prices locked in | Those who want certainty and can pay upfront |
One standout for retirees: a funeral bond is generally exempt from the Age Pension assets test up to the Funeral Bond Allowable Limit ($16,250 per person as at 1 July 2026), and because you invest rather than pay premiums, you can never pay more than you put in. Also check whether your superannuation death benefit or existing life insurance already covers the cost, since many people pay for protection they already have.
Who funeral insurance might still suit
It is not always the wrong choice. It can genuinely suit you if:
- You cannot qualify for life insurance due to health and want certainty of a payout.
- You have no savings and cannot commit a lump sum to a bond or prepaid funeral.
- You value the simplicity of a regular payment and the peace of mind.
If you go ahead, choose level or capped premiums, read the PDS cover to cover, and do the maths on total likely premiums versus the benefit first.
How to decide
- Work out what a funeral would realistically cost for your preferences.
- Check whether your super death benefit or life insurance already covers it.
- Do the maths: estimated total premiums over your likely lifetime versus the benefit.
- Compare the alternatives (savings account, funeral bond, prepaid funeral).
- If you still want it, read the PDS for waiting periods, premium type and cancellation terms.
- Consider a licensed financial adviser (not a commission-based salesperson).
❓ Frequently asked questions
Is funeral insurance worth it in Australia?
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For most people it is not the best value. The main risk is that stepped premiums rise as you age, so if you live long enough you pay more in premiums than the policy ever pays out. ASIC Moneysmart recommends considering a funeral bond, prepaid funeral or dedicated savings account first. It can suit people who cannot save a lump sum or qualify for other cover.
What is the difference between funeral insurance and a funeral bond?
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Funeral insurance is premium-based: you pay regularly and your family gets a lump sum, but you could pay more than the benefit over time. A funeral bond is an investment: you put money in, it grows, and it is released on death, so you cannot pay more than you contribute. Funeral bonds are also generally exempt from the Age Pension assets test up to a limit.
What happens if I stop paying funeral insurance?
+
In most cases you lose everything you have paid in. Most policies have no surrender value, so cancelling or missing payments means no refund and no payout. This is one of the biggest risks, especially for people on fixed incomes whose premiums keep rising.
Does funeral insurance have a waiting period?
+
Almost always. Most policies only cover accidental death in the first 12 to 24 months. If you die from an illness in that window, your family may receive nothing, or only a refund of premiums paid. Check the PDS carefully.
Is a funeral bond exempt from the Age Pension assets test?
+
Generally yes, up to a limit. As at 1 July 2026 the Funeral Bond Allowable Limit is $16,250 per person (indexed annually). You can hold up to two bonds, but the combined value must stay within the limit to remain exempt. Confirm the current figure with Services Australia.
How much should I set aside for a funeral in Australia?
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A realistic target is $7,000 to $10,000 for a mid-range service, though a direct cremation can be $3,000 to $5,000 and a full burial $15,000 or more. Setting aside $10,000 to $12,000 gives a comfortable buffer for most funerals and some cost increases.
Keep reading
The bottom line
Funeral insurance sells peace of mind, but for many Australians the stepped-premium structure means paying more than the payout, with nothing back if you stop. Before you sign anything, size the actual cost of a funeral, check what your super and existing cover already provide, and compare a funeral bond or a simple earmarked savings account. Often, one of those is the calmer, cheaper answer.
📚 Recommended reading
The Barefoot Investor
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The Barefoot Investor
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Australia's best-selling money book ever. A simple system for accounts, budgeting, debt and a real emergency fund in one.
Making Money Made Simple
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Making Money Made Simple
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Australia's classic, comprehensive money guide covering tax, super and investing, updated for today.
Money School
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Some links above are affiliate links. If you buy through them, Snowball Invest may earn a small commission at no extra cost to you. We only recommend books we'd suggest anyway.
Sources
This article is general information only, not financial advice. Funeral costs, insurance premiums and government thresholds change over time. Check ASIC Moneysmart, Services Australia and a licensed financial adviser before making any decisions.
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General information only. This article is educational and does not constitute personal financial advice. It does not account for your circumstances. Consider your own situation and seek advice from a licensed adviser before acting. Read our full disclaimer.
Timothy Hirou Gaschereau
Founder of Snowball Invest, not a financial adviser.
I write about what I'm learning myself, because nobody ever taught us how to take control of our own money. It's a skill, not a mystery, and it's never too late to learn it. The best day to start was yesterday, the second best is today.
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