Most people who take out life insurance do so because they’re worried about how their loved ones will be supported after they pass away. Concentrating on other people makes it easy to not think about the circumstances of your own passing. You’re thinking about how your young kids will pay for uni, or how your partner will live out their retirement, or how you’ll keep wealth in the family to leave a legacy. But what a lot of people fail to consider are the expenses that are incurred right after they pass away.
Put it this way: most Australians have some form of life insurance, whether privately arranged or through their super. But unfortunately some people don’t understand what’s included in their coverage. This could suggest that they assume it’s paid out relatively quickly, and that there’s an amount available to cover funeral expenses. Which makes sense, seeing that some reports put funeral insurance uptake at less than 2% of the population.*
The truth is that life insurance payouts can take months. But funeral expenses need to be paid right away. And while many jurisdictions legally require funeral companies to offer a basic minimum no frills option, ASIC’s MoneySmart puts funeral costs at anywhere between $4,000 and $15,000.# Chucking it all on the credit card might not be an option for the loved ones handling your funeral. Speaking of loved ones left behind – do they even know what you want for your funeral?!
There are a couple of ways to ease the immediate burden on your loved ones when you pass away. And make sure you get what you want at the same time.
Prepaid funeral
A prepaid funeral is pretty much what it sounds like. You go to a funeral director ahead of time, choose the type of funeral you’d like, and either pay for it up front or start a payment plan. The up sides are that you get to choose what you want, and you lock in current prices. The down side is that if you die before it’s all paid off, there will still be an amount left to cover. There is also a small business risk – the company you make the contract with may go out of business.
Funeral insurance
Funeral insurance covers you for the cost of your funeral. Like other types of insurance, the higher the coverage amount, the higher the premiums. On the upside, many insurers specify in their policy that the amount will be paid out within one or two business days. One potential disadvantage is that premiums tend to rise sharply after a certain age.
Decide who gets your super when you die
What happens to your super death benefit when you die? That depends on what type of account you have and if you've told us what you want to happen in the event of your death.
Decide who gets your super when you die
What happens to your super death benefit when you die? That depends on what type of account you have and if you've told us what you want to happen in the event of your death.
