Prepaid Funeral Plans in Australia: How They Work and What to Check

A prepaid funeral plan in Australia lets you choose and pay for parts of your funeral in advance, either in one payment or by instalments. Some plans are structured so that your money is held in a funeral bond issued by an APRA-regulated friendly society, and a funeral director delivers the service when the time comes. Plans, bonds and funeral insurance work differently, so the contract matters more than the label.

This guide explains how plans are set up, what to ask before you sign and where to check the Centrelink rules. We have not quoted Centrelink funeral investment limits because they are indexed and change, so check the current figures with Services Australia.

What is a prepaid funeral plan?

Simplicity Funerals, which sells plans in partnership with Guardian Plan, describes a prepaid plan as an arrangement that lets you plan and pay for selected items of a funeral service in advance. You pay in full up front or by instalments. Once the plan is paid in full, it says, there are no extra costs for the inclusions you chose.

Choice's guide to funeral insurance, last updated in May 2017, lists alternatives to funeral insurance. They include pre-paid funeral plans, which it says lock in today's prices, and funeral bonds, which it describes as invested funds set aside for funeral expenses. It also lists a simple savings account that relatives know is earmarked for the funeral.

How is the money held?

It depends on the product, so ask. In the Guardian Plan structure that Simplicity describes, three parties are involved: you, the funeral provider and the plan provider. Your money is invested in a funeral bond issued by Over Fifty Guardian Friendly Society Limited, which Simplicity describes as an APRA-regulated friendly society. When you die, your family contacts the funeral director named in your plan, and that director carries out the service as agreed.

Other providers may use different arrangements. Before you pay, ask:

• Who holds the money, and is it kept separate from the funeral director's own funds?
• Is the holder regulated, and by whom?
• What happens if the funeral director or plan provider closes or is sold?

Plan providers publish a Product Disclosure Statement (PDS) and a Target Market Determination (TMD). Simplicity links to Guardian Plan's PDS and TMD from its prepaid plans page. Read both before you commit, because they set out what is covered, what is not and how the product works.

What does a prepaid funeral cost?

Prices depend on the type of funeral, the state and the provider. As an example, Simplicity's website showed "from" prices for Newtown, NSW, of $3,849 for a cremation only, $5,549 for a burial with a service and $7,249 for a cremation with a service, with instalment options. That is one provider in one suburb, so use it as an illustration, not an average. Our guides to average funeral costs in Australia, burial costs and cremation costs give wider ranges.

Whatever the quote, ask exactly what it includes. Plans may cover the funeral director's services and coffin but treat cemetery or crematorium fees, a celebrant, flowers and death notices differently. Ask for an itemised list, and ask whether the price is fixed once you have paid in full.

Can you pay by instalments?

Many providers allow it. Simplicity offers full payment up front, or an initial contribution and monthly instalments for up to 36 months. Its quote tool states a minimum 30% deposit. Other providers will differ.

Ask what happens if you die before you finish paying. Some contracts make your family pay the balance, and others handle it differently. Get the answer in writing.

Plan, bond or insurance: what is the difference?

Choice's warning about funeral insurance is worth knowing. It said you can end up paying more in premiums than the cover is worth, that premiums rise with age, that stopping payments means losing cover with no refund in most cases, and that for the first two years policies typically cover only accidental death. That article is dated 2017, so check the terms of any policy today. Our guide to prepaid plans versus funeral insurance sets out the general trade-offs, although it is written from a US perspective.

Does a prepaid plan affect Centrelink or DVA payments?

It can, which is why you should check first. The Social Security Act 1991 includes a definition of "exempt funeral investments" (section 19E) that applies in the assets test, and Services Australia publishes how plans and bonds are treated. The Department of Veterans' Affairs may have its own rules for people who receive its payments.

Limits and conditions are indexed or can change, and not every product counts as exempt. Before buying, ask the provider whether the product is treated as an exempt funeral investment, and confirm that with Services Australia or a financial counsellor. If you are on the Age Pension, this check can matter more than the price.

What should you ask before you sign?

1. What exactly is included, and what is left out?
2. Is the price fixed once I have paid in full?
3. Who holds my money, and how is it protected?
4. Can I cancel, and is there a cooling-off period or a refund?
5. If I move interstate, can the plan be transferred?
6. What happens if I die before the plan is fully paid?
7. Where can I read the PDS and TMD?

Simplicity itself says its prepaid product is a financial product that may not be suitable for everyone. That caution applies to any provider, and a financial counsellor can help you weigh it. See our guides on choosing a prepaid plan, cancelling a plan and transferring a plan.

What happens when you die if you have a plan?

Your family calls the funeral director named in the plan and the service goes ahead as agreed. The death must still be registered with your state or territory. Our guide to death registration in Australia explains how.

The biggest risk is that nobody knows the plan exists. Keep a copy of the contract with your will and other papers, and tell your executor or next of kin. Our guide to telling your family your funeral wishes can help.

What to do next

1. Decide what kind of funeral you want, such as direct cremation, a service or a burial.
2. Get itemised quotes from at least two providers and read each PDS and TMD.
3. Check the Centrelink and DVA treatment with Services Australia or a financial counsellor before paying.
4. Tell your family who the funeral provider is and where the paperwork is kept. If you are dealing with a death now, our Centrelink bereavement payment guide covers help that may be available.