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Funeral insurance pays your family a fixed lump sum when you die, meant for funeral costs. Moneysmart says the usual choice is between $5,000 and $15,000 of cover, paid for with ongoing fortnightly or monthly premiums.
It is sold as simple and affordable, but Moneysmart's own summary is blunt: funeral insurance can cost you a lot more than the benefit your family will receive, and if you stop paying you lose what you have already paid. For many people, especially those already in their 50s or 60s, a funeral bond, a prepaid funeral or plain savings will cost less.
By Better Rate Mate Editorial Team ยท Last reviewed
You choose a benefit amount, pay premiums for as long as you live, and the insurer pays the benefit to your family when you die. You are not saving: the premiums buy insurance, not a balance you can draw on.
Cover usually starts straight away, but with a catch. Moneysmart notes that most policies only cover accidental death in the first few years, so if you die from an illness, including a terminal one, during that period the policy may not pay. After that the full benefit applies, subject to the policy's exclusions.
Moneysmart also warns against expenses-only funeral cover, where your family must prove the funeral costs with receipts to claim. It says that type offers less legal protection and has a lot of exclusions.
The problem is time. Premiums keep coming for the rest of your life, and Moneysmart says they go up after you turn 50 and every year with inflation. If you live another five to ten years, you may have paid more in premiums than the funeral would have cost. Stop paying, because the premiums have become unaffordable on the Age Pension, and the cover ends with nothing refunded.
Moneysmart's worked example is Mary, who took out funeral insurance at 58 for $20 a fortnight. By 71 her premium had doubled to more than $40 a fortnight, and she had already paid more than $10,000 over 13 years. Those are Moneysmart's illustrative figures, not a current quote, but the pattern they show is the point: a small fortnightly cost becomes a large total.
Insurers that subscribe to the Life Insurance Code of Practice (current version in effect from 1 March 2025) have made specific promises about funeral insurance. Hold them to these if you are being sold a policy.
Moneysmart lists several alternatives, and some are cheaper over time. Funeral costs you pay for in advance normally don't count in the assets test for Centrelink payments, with some exceptions set out by Services Australia.
| Option | How it works | Cost over time | If you stop or cancel |
|---|---|---|---|
| Funeral insurance | Fixed benefit for ongoing premiums | Premiums rise with age and inflation and can exceed the benefit | Cover ends; premiums usually not refunded |
| Term life insurance | Lump sum on death or terminal illness for a larger sum insured | Stepped premiums rise with age; can be better value per dollar of cover while younger | Cover ends; nothing refunded |
| Funeral bond | Deposit plus regular payments, invested; only usable for your funeral | Money earns returns; check fees in the PDS | Can't withdraw early |
| Prepaid funeral plan | You choose and pay for the funeral with a funeral director at today's prices | Price doesn't rise over time | Depends on the contract; check if it moves interstate |
| Savings account or term deposit | Money set aside and earmarked | Earns interest; no premiums | Stays yours |
| Super | Family claims a death benefit and can use it for costs | No extra cost | Family may pay upfront and be repaid later |
Moneysmart puts funerals at between $8,000 and around $20,000, depending on the type of funeral (as at September 2026). The main costs are the funeral director's fees, transport, a coffin, the death certificate and permits, burial or cremation, a cemetery plot, and extras such as a celebrant, flowers, notices and the wake. Getting a written quote from a local funeral director gives you a real target to save or insure against, rather than a guess.
Don't cancel in a hurry. Premiums you have already paid are generally gone either way, so the question is whether the premiums still to come are worth the benefit. Ask the insurer for the current premium, how it is expected to change, and whether the policy has any value or paid-up option if you stop.
If you can afford to keep paying and your family would struggle without the payout, keeping it can be reasonable. If the premiums are becoming hard to meet, compare the likely total cost against saving the same amount in an account or buying a funeral bond, and get help from the National Debt Helpline or a financial counsellor if the payments are causing hardship.
For many people it isn't. Moneysmart warns funeral insurance can cost a lot more than the benefit, premiums rise after 50 and with inflation, and you lose everything paid if you stop. It can suit someone who is unable to save and wants certainty, but compare it against a funeral bond, a prepaid funeral or savings first.
Premiums can rise sharply over time, total premiums can exceed the benefit, there is no refund if you cancel or can't afford the premiums, illness is often not covered in the first few years, and the payout can take time to reach your family.
There isn't a single best policy. Compare the benefit amount, the accidental-only period, the premium structure and how it rises, what happens if you stop paying, and whether a term life policy or a funeral bond would cost less for the same outcome.
Usually it is the hardest time to start. Premiums are highest in later life and keep rising while income on the Age Pension stays fixed. A prepaid funeral or funeral bond fixes the cost, and money paid in advance for a funeral normally isn't counted in the Centrelink assets test.
No. Funeral insurance is a type of life insurance with a small fixed benefit, often little or no health underwriting, and premiums for life. Term life cover usually offers a much larger sum insured, needs more health questions and has an expiry age.
If premiums on an existing policy are causing hardship, the National Debt Helpline (1800 007 007) offers free, confidential financial counselling. You can also ask your insurer about its financial hardship options.
Life, TPD and trauma cover pay lump sums. Income protection is the cover that pays a monthly income while you recover.
