What is the difference between prepaid funerals, funeral bonds and funeral insurance?

Three products exist for Australians who want to pay for their funeral before they pass away: prepaid funeral plans, funeral bonds, and funeral insurance. They sound alike, but the cost and the risk are very different.

Consumer bodies including ASIC MoneySmart, CHOICE and the Consumer Action Law Centre have warned that one of these three (funeral insurance) is often not in the consumer's interest.

This is general information, not financial advice. Consider speaking with a financial counsellor or independent adviser if you are unsure which option suits your situation. Provider prices, fees and government thresholds change over time, and thresholds are indexed, so confirm current figures with the provider or the relevant authority before relying on them.

The three options at a glance

Prepaid funeral plans

A prepaid plan lets you lock in a specific funeral service at today's prices. If you pay for a direct cremation today, that is the service your family receives, at the price you paid, regardless of what the same service costs in 10 or 20 years.

What it costs: Ask whether the prepaid price matches the provider's current price for the same service, and what the administration or setup fee is. The fee varies by provider, so get it in writing alongside the plan price and check whether it comes out of the amount you prepay or is charged on top.

Providers offering prepaid: At the time of our research (checked 6 August 2026), providers including Fixed Price Cremations, Greenfields Funerals, Salvos Funerals, and Willed offered prepaid options. Availability varies and changes over time; ask each provider for their current prepaid price list.

The advantages:

You lock in today's price against future inflation. Your family does not have to make cost decisions while grieving. For pensioners, a prepaid funeral that is fully paid, contracted and not refundable is exempt from the Centrelink assets test, with no limit on the amount (Social Security Guide). The plan is typically paid as a lump sum or in instalments over a short period (not indefinite monthly payments).

The risks:

The plan only covers what is explicitly listed in the contract. If your family wants anything additional at the time (a different coffin, flowers, a service that was not included), they pay the difference out of pocket. A very old plan may not list items a modern funeral charges for, like an after-hours transfer, and the family pays for anything not listed. Read what your plan actually covers, and what it does not.

Provider insolvency is the other risk. If the funeral provider goes out of business, your prepaid funds may not be fully protected. Protection varies by state. Some states require prepaid funds to be held in a trust or invested in a funeral bond; others have weaker requirements.

Who it suits: People who have a clear idea of what funeral service they want, have the lump sum available, and have chosen a provider they are confident will still be operating when the time comes.

Funeral bonds

A funeral bond is an investment product, usually capital guaranteed. You invest a lump sum, it earns interest, and the balance pays the funeral director when you die.

What it costs: You invest whatever lump sum you choose, up to the allowable limit, which is indexed each 1 July (see Services Australia for the current Centrelink limit, and DVA for the DVA assets-test treatment). There is no ongoing premium. The bond earns interest at a rate set by the bond provider.

The Centrelink advantage: Funeral bonds up to the allowable limit are exempt from the Centrelink pension asset test. Services Australia's page on funeral bonds and prepaid funerals confirms prepaid funeral costs are normally left out of the assets test, but it does not give the dollar limit, so ask Centrelink for the current figure. DVA applies a similar exemption for veteran pensions; see DVA's page on funeral bonds and prepaid funeral plans. You can set aside up to the limit for your funeral without it reducing your pension entitlement.

The advantages:

Most bonds are capital guaranteed, so check the product. Exempt from the pension asset test up to the allowable limit. You can usually leave the choice of funeral director until the time of need, though some bonds ask you to name one now. Grows with interest over time.

The risks:

Interest rates on funeral bonds are typically low. Your bond may not keep pace with funeral price inflation if you hold it for decades. The bond provider also charges administration fees. If the amount you invest exceeds the allowable limit, the whole bond, not just the excess, loses its exempt status and is assessed as an asset for pension purposes; see the Social Security Guide on exempt funeral investments for how this is applied, or confirm the exact treatment with Services Australia before committing funds.

Who it suits: Pensioners who want to protect their pension entitlement while setting aside funeral funds. Anyone who wants a capital-guaranteed product without committing to a specific provider or service type today.

Funeral insurance

Funeral insurance is an ongoing premium product, similar in structure to life insurance. You pay monthly premiums until you die or the policy ends, and on many policies the premium rises as you get older. Moneysmart's worked example shows how that increase adds up over time. On death, the insurer pays a lump sum to your beneficiary.

What consumer advocates say:

ASIC MoneySmart says your premiums could cost you more than your funeral: if you live another five to 10 years, you may end up paying more in premiums than the cost of the funeral. The Consumer Action Law Centre has campaigned against funeral insurance practices, particularly in Aboriginal and Torres Strait Islander communities where aggressive door-to-door sales have been documented. CHOICE has also published critical coverage of funeral insurance pricing.

The arithmetic problem:

Multiply the monthly premium by the number of months you expect to keep paying, then compare the total with the payout. The payout is fixed, but the premiums keep coming for as long as you live, so every extra year you hold the policy moves the total further past the benefit. If you start paying in your 50s or 60s and live into your 90s, the total premiums paid can be multiples of the payout.

The lapse risk:

If you miss premium payments (because of illness, hospitalisation, cognitive decline, or financial hardship), the policy can be cancelled. Most policies do not refund premiums, so you lose what you have paid in.

Waiting periods and exclusions:

Many funeral insurance policies have a waiting period (often the first year or two) during which no payout is made for death from illness. Some policies only pay a reduced benefit or refund of premiums during this period.

Who it might suit: People who cannot afford a lump sum for a bond or prepaid plan and want some coverage in the short to medium term. But even in this scenario, the consumer advocates' position is clear: the same monthly amount in a savings account cannot lapse and stays yours.

Side-by-side comparison

What to check before signing anything

For a prepaid plan:

1. 1Get a written list of exactly what is included in the contract.
2. 2Ask what happens to your funds if the provider closes or is sold.
3. 3Check whether your state requires trust-based protection of prepaid funds.
4. 4Ask what happens if you want to transfer the plan to a different provider.
5. 5Confirm the administration fee and whether it is deducted from your prepaid amount or charged separately.

For a funeral bond:

1. 1Confirm the current interest rate and whether it is fixed or variable.
2. 2Check the current allowable limit with Services Australia (it is indexed each 1 July) and confirm your bond does not exceed it if pension exemption matters to you.
3. 3Understand the nominated funeral director arrangement: is it locked to one provider or flexible?
4. 4Ask about the bond provider's fees and whether they are deducted from your balance.

For funeral insurance (if you still want to proceed):

1. 1Calculate total premiums you will pay over 10, 15, and 20 years and compare to the payout amount.
2. 2Check the waiting period and what happens if you pass away during it.
3. 3Check what happens if you miss a payment (grace period, cancellation terms).
4. 4Ask whether premiums increase with age (some policies step up premiums annually).
5. 5Consider whether a savings account would produce a better outcome at the same monthly contribution.

The savings account alternative

ASIC MoneySmart suggests considering a dedicated savings account instead of funeral insurance. You keep full control of the money. It cannot lapse. If you pass away early, whatever is in the account goes to your family for funeral costs. If you live long, the balance grows rather than being consumed by an insurer's margins.

The downside: a savings account is not Centrelink-exempt (unlike a funeral bond) and does not lock in a price (unlike a prepaid plan). For pensioners, the funeral bond addresses the Centrelink issue. For everyone else, the savings account often wins on pure mathematics.

Frequently asked questions

Before you commit to a product

• How to plan a low-cost funeral on a budget
• Full itemised funeral cost breakdown (2026)
• Find a funeral director near you
• Back to: How much does a funeral cost in Australia?