Life can be expensive but so it seems, is death. The average funeral costs around $7000, yet research by comparison site Finder shows 60 per cent of Australians either haven’t thought about their funeral costs or are expecting relatives to foot the bill. One in 10 have considered ways to dodge the expense altogether by donating their body to science or not having a funeral at all.
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Typically, funeral arrangements need to be made quickly, at a time of intense grief. However, the big question is how to pay for it all.
It is possible to plan ahead.
One option is prepaid funerals available through funeral directors. 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, a type of tax-free investment that can only be accessed after your death. The sweetener is money invested in funeral bonds is normally excluded from the age pension assets test.
A third possibility is funeral insurance. You pay premiums, and if you die the policy covers the cost of the funeral. The (unsurprising) catch is premiums can skyrocket as you get older. According to ASIC as many as 80pc 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.
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.
