Funeral insurance is a stepped-premium product, not savings — premiums often rise with age, total payments can exceed the payout, and cancelling usually forfeits everything paid, since most policies have no surrender value. A funeral bond or prepaid funeral, exempt from the Age Pension assets test up to $16,250 from 1 July 2026, is usually better value since the money stays under your own control.
If you're over 60, you've almost certainly seen the ads — the gentle music, the reassuring voice, the promise that for "just a few dollars a week" you can spare your family the cost and stress of your funeral. Funeral insurance is marketed hard to older Australians, and it taps into a genuine and decent worry: nobody wants to leave their family with a bill at the worst possible time. But the consumer regulator, ASIC, warns through its MoneySmart service that funeral insurance is often poor value, and the reasons are worth understanding before you sign up to anything. The short version is that the way the product is built can quietly work against you: you might pay in more than your family ever gets back, the premiums can rise out of reach, and if you stop paying you usually lose the lot (ASIC MoneySmart, https://moneysmart.gov.au/other-types-of-insurance/funeral-insurance). This article is general information only, not personal advice.
What is funeral insurance actually?
The first thing to be clear about is that funeral insurance is insurance, not savings. You pay regular premiums — often fortnightly or monthly — and when you die, the insurer pays a lump sum to your family to help with funeral costs, with the cover amount (commonly somewhere in the order of $5,000 to $15,000, though it varies widely by policy) set when you take it out. That distinction matters enormously, because it shapes everything that follows: with a savings product the money is yours, but with insurance you're paying for cover, and if you stop, the cover stops (ASIC MoneySmart, https://moneysmart.gov.au/other-types-of-insurance/funeral-insurance).
What are the traps to understand?
The first trap is that you can pay in more than the payout. The premiums keep coming for as long as you live, unless the policy specifically caps them, so if you live longer than the insurer's pricing assumed, your total premiums can end up exceeding the lump sum your family receives — MoneySmart's own example follows "Mary," whose premium had doubled to more than $40 a fortnight by age 71 because it rose every year (ASIC MoneySmart, https://moneysmart.gov.au/other-types-of-insurance/funeral-insurance). That points straight to the second trap: the premiums often rise with age. Many policies have "stepped" premiums that increase after about age 50 and again each year with inflation, so the cost climbs precisely as you move onto a fixed retirement income, and can become genuinely unaffordable in your 80s.
The third trap is the harshest. If you stop paying, you usually lose everything: most funeral insurance has no surrender value, so if you cancel, or simply can't keep up with the rising premiums, you typically get nothing back — MoneySmart's "Ruby" cancelled her policy and realised she'd lost the thousands she had paid over the years (ASIC MoneySmart, https://moneysmart.gov.au/other-types-of-insurance/funeral-insurance). Years of payments can vanish, leaving you with neither the cover nor the money. And fourth, the payout often isn't indexed: a lump sum fixed in today's dollars is worth less in real terms decades from now while the cost of funerals keeps rising, so the cover you took out to "cover the funeral" may end up falling well short of one.
What features can soften these risks?
To be fair, not every policy is the same, and some have features that reduce these risks. Some cap the premiums so you stop paying once you reach a certain age or once your total premiums reach the amount of cover; some offer capped cover or a guarantee that you won't pay in more than the benefit. These features vary a great deal from policy to policy, which is exactly why the Product Disclosure Statement is essential reading before you commit — it's where the real terms live, and where you can check whether the premiums are capped and how the cover is indexed.
How does it compare to a funeral bond for Centrelink?
One more point worth knowing: funeral insurance is not the same as a funeral bond when it comes to the Age Pension — the means-tested government payment administered by Services Australia. A funeral bond (or a prepaid funeral) is exempt from the assets test up to an allowable limit of $16,250 as at 1 July 2026, a figure the Department of Social Services reviews each 1 July (Services Australia, https://www.servicesaustralia.gov.au/funeral-bonds-and-prepaid-funerals). Funeral insurance, because it usually has no surrender value, generally has little or nothing to assess under the means test — but it also doesn't give you the positive exemption benefit a funeral bond or prepaid funeral does. They're different products with different roles.
What are the better-value alternatives?
For many people, the same goal — making sure there's money set aside for a funeral — is better achieved by self-funding, which keeps the value in your own hands rather than at risk. A funeral bond is a capped savings and investment product that grows over time, is exempt from the Age Pension assets test up to the $16,250 limit (1 July 2026), and pays out on death. A prepaid funeral lets you pay the funeral director now and lock in today's price, and is also assets-test exempt (Services Australia, https://www.servicesaustralia.gov.au/funeral-bonds-and-prepaid-funerals). And simple earmarked savings — setting money aside for the purpose — keeps you in full control, with access if your circumstances change. MoneySmart itself suggests considering a prepaid plan or saving directly before taking out funeral insurance (ASIC MoneySmart, https://moneysmart.gov.au/manage-your-money-in-retirement/paying-for-your-funeral). (Our companion pieces on funeral bonds and on comparing funeral bonds, prepaid funerals, and funeral plans go into these in more detail.)
What do the worked examples show?
These show when funeral insurance costs more than it returns, and how a funeral bond does double duty. They are illustrative only — not personal advice, and policy terms and rates vary.
Norma, 68, is tempted by an ad offering $8,000 of funeral cover for about $15 a week. On these facts the long-run maths deserves a look before she signs: $15 a week is roughly $780 a year, so if she lives into her late eighties she could pay in well over $15,000 — potentially close to double the $8,000 benefit — and that's before the stepped premiums climb each year as MoneySmart's "Mary" example shows, while the $8,000 itself isn't indexed and buys less of a funeral two decades on (ASIC MoneySmart, https://moneysmart.gov.au/other-types-of-insurance/funeral-insurance). On these facts it is generally rational for Norma to compare that against putting a similar amount into a funeral bond or earmarked savings, where the money stays hers, can't be lost if she stops contributing, and isn't subject to ever-rising premiums. The decency of the goal is real; the product is just often the dearer way to reach it.
Frank and Susan, a homeowner couple in their early seventies receiving a part Age Pension, want to set aside money for their funerals without reducing their pension. On these facts a funeral bond does two jobs at once: up to the allowable limit of $16,250 each (1 July 2026) the money is exempt from the assets test, so it doesn't count against their pension the way ordinary savings or a deemed financial investment would, and it's there for the purpose when needed (Services Australia, https://www.servicesaustralia.gov.au/funeral-bonds-and-prepaid-funerals). On these facts it is generally rational for them to use a funeral bond or a prepaid funeral rather than funeral insurance, because they get the funeral provision they want plus an assets-test benefit, instead of paying premiums into a product that offers neither. The same dollars, kept under their own control, work harder.
So — is it worth it?
For some people, particularly those with no savings and no realistic way to set money aside, funeral insurance might still be a reasonable choice for the certainty of a lump sum — but only after reading the Product Disclosure Statement, checking whether the premiums are capped, and understanding that stopping payments means losing what you've put in. For most people with some capacity to save, though, the maths tends to favour keeping your money under your own control — in a funeral bond, a prepaid funeral, or earmarked savings — rather than paying premiums into a product you could ultimately pay too much for, or lose entirely. The worry funeral insurance plays on is real and reasonable; it's just that there's usually a better way to answer it.
Sources
- ASIC MoneySmart — Funeral insurance
- ASIC MoneySmart — Paying for your funeral
- Services Australia — Funeral bonds and prepaid funerals
Key takeaways
- Funeral insurance is insurance, not savings — you pay premiums for cover, and if you stop paying, the cover (and usually everything you've paid) stops too.
- Premiums often rise with age under 'stepped' pricing, and if you live long enough, total premiums paid can exceed the lump sum payout.
- Most funeral insurance has no surrender value, so cancelling a policy — whether by choice or because premiums become unaffordable — typically means losing everything paid in.
- A funeral bond or prepaid funeral is exempt from the Age Pension assets test up to $16,250 per person (effective 1 July 2026), giving a genuine Centrelink benefit that funeral insurance doesn't.
- For most people with some capacity to save, a funeral bond, prepaid funeral, or earmarked savings keeps the money under their own control and is usually better value than funeral insurance premiums.
Frequently asked questions
Is funeral insurance the same as savings for a funeral?
No. Funeral insurance is a form of insurance — you pay premiums for cover, and if you stop paying, the cover ends, typically with no money returned. A funeral bond or prepaid funeral is closer to savings, since the money is genuinely yours.
Can funeral insurance premiums increase over time?
Yes. Many policies have 'stepped' premiums that rise after around age 50 and then again each year, so the cost climbs just as you move onto a fixed retirement income, and can become unaffordable in your 80s.
What happens if I cancel a funeral insurance policy?
Most funeral insurance has no surrender value, so cancelling — whether by choice or because you can no longer afford rising premiums — typically means losing everything you've paid, with nothing returned.
Is a funeral bond better value than funeral insurance?
For most people with some capacity to save, yes. A funeral bond or prepaid funeral is exempt from the Age Pension assets test up to $16,250 per person (effective 1 July 2026), keeps the money under your own control, and avoids the risk of paying in more than you'll ever get back.