Life can be expensive but so it seems, is death. The average funeral costs around $7,000, yet research by comparison site Finder shows 60% of Australians either haven’t thought about their funeral costs or are expecting relatives to foot the bill. One in ten have considered ways of dodging the expense altogether by donating their body to science or not having a funeral at all.
Decisions about funeral arrangements typically need to be made quickly, and often at a time of intense personal grief.
Understandably, money watchdog ASIC found we usually settle for the first funeral product we find with little thought about value for money.
Websites like Gathered Here offer online price comparisons of funeral costs. However, the big question can be how to pay for it all.
Using life insurance may be an option though it can take weeks for the payout to be finalised. This assumes life cover is in place, which may not be the case for many seniors.
The thing is, it’s possible to plan ahead - not just to decide the type of funeral you’d like, but also to cover the cost.
One option is prepaid funerals available through funeral directors. You choose the type of funeral you’d like and pay for it in advance or pay it off gradually a bit like lay-by. This locks in the cost at today’s prices but you may not get your money back if you change your mind.
An alternative is funeral bonds. These are a type of tax-free investment that can only be accessed after your death. The sweetener for retirees is that money invested in funeral bonds is normally excluded from the age pension assets test.
A third possibility is funeral insurance. The idea here is very straightforward. You pay premiums, and if you die the policy covers the cost of the funeral. The catch is that the premiums can skyrocket as you get older – not surprising really. Canstar found it can cost a 52-year old $45 in monthly premiums to buy $10,000 worth of cover for funeral expenses. For a 72-year old, the monthly premiums rise to $72.
Seniors can find it hard keeping up these sort of payments, and according to ASIC as many as 80% of funeral policies sold are cancelled - often in the first year, largely because of the cost. But if you stop paying, you lose the cover.
If you’re really concerned about meeting funeral costs, a simple option is to open a dedicated savings account to save for the expense.
Whatever the case, be sure to let loved ones know about any financial products you have in place to pay for your funeral. It’s a final legacy that could be greatly appreciated by family members.
Paul Clitheroe is a founding director of financial planning firm ipac, Chairman of the Australian Government Financial Literacy Board and chief commentator for Money Magazine.
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