Are prepaid funerals worth it? Prepaid plans, funeral bonds and funeral insurance compared
Three products exist for Australians who want to pay for their funeral before they die: prepaid funeral plans, funeral bonds, and funeral insurance. They sound similar but work differently, cost differently, and carry very different levels of risk.
Consumer advocates are clear that one of these three is almost never in the consumer's interest. This guide explains what each product actually does, what it costs, who it suits, and where the traps are.
This is general information, not financial advice. Speak with a financial counsellor or independent adviser if you are unsure which option suits your situation.
The three options at a glance
Prepaid funeral plan: You choose and pay for a specific funeral service now, at today's prices, with a nominated provider. When the time comes, your family receives that service with no further payment (assuming nothing is added beyond the contract).
Funeral bond: You invest a lump sum (up to $15,500, indexed annually) in a capital-guaranteed product. The money grows at a modest interest rate and is released to a nominated funeral director on your death. Up to the ATO threshold, the bond is exempt from the Centrelink and DVA pension asset test.
Funeral insurance: You pay ongoing monthly premiums to an insurer. On your death, the insurer pays a lump sum (typically $5,000 to $15,000) to your nominated beneficiary. This is the product that consumer advocates consistently warn against.
Prepaid funeral plans
A prepaid plan lets you lock in a specific funeral service at today's prices. If you choose a direct cremation today for $2,500, that is what your family receives regardless of what the same service costs in 10 or 20 years.
What it costs: Prepaid funeral costs mirror at-need prices for the same service, plus an administration or setup fee. Admin fees range from $140 to $395 depending on the provider. A prepaid direct cremation starts from around $1,995 at budget providers (plus admin fee). Advertised prepaid direct cremation packages at mid-range providers typically fall between $4,000 and $4,555.
Providers offering prepaid: Fixed Price Cremations, Greenfields Funerals, Salvos Funerals, and Willed all offer prepaid options.
The advantages:
You lock in today's price against future inflation. Your family does not have to make cost decisions while grieving. 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. One consumer experience from our research: a prepaid plan from the 1950s only credited $1,400 against a modern funeral, leaving the family with $9,330 in additional charges including $1,800 for transport and mortuary care and $530 for an after-hours transfer.
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 a capital-guaranteed investment product. You invest a lump sum, it earns interest, and the full balance is paid to a nominated funeral director on your death.
What it costs: You invest whatever lump sum you choose, up to the ATO assessment threshold of $15,500 (this threshold is indexed annually). 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 $15,500 ATO threshold are exempt from the Centrelink and DVA pension asset test. This is the primary reason pensioners use them. You can set aside $15,500 for your funeral without it reducing your pension entitlement.
The advantages:
Capital-guaranteed (you cannot lose your principal). Exempt from the pension asset test up to the threshold. Not tied to a specific provider (some bonds let you nominate any funeral director at the time of need, though arrangements vary). Grows with interest over time.
The risks:
Interest rates on funeral bonds are typically modest. Your bond may not keep pace with funeral price inflation if you hold it for decades. The bond is also not free of administration fees from the bond provider. If you exceed the $15,500 threshold, the excess is assessed as an asset for pension purposes.
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 ($50 to $100 per month is common, per Consumer Action Law Centre sources) for the duration of your life. On death, the insurer pays a lump sum to your beneficiary.
What consumer advocates say:
ASIC MoneySmart explicitly states that funeral insurance premiums often exceed the payout. 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:
At $75 per month over 15 years, you pay $13,500 in premiums. At $75 per month over 20 years, you pay $18,000. If the payout is $10,000 to $15,000, you have paid more than you receive. The longer you live, the worse the equation becomes. And 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. You lose everything you have paid in. There is no refund of premiums.
Waiting periods and exclusions:
Many funeral insurance policies have a waiting period (typically 12 to 24 months) 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: putting that same $75 per month into a savings account is almost always a better outcome.
Side-by-side comparison
| Prepaid plan | Funeral bond | Funeral insurance | |
|---|---|---|---|
| Payment structure | Lump sum (or short instalments) | Lump sum | Ongoing monthly premiums |
| Typical cost | $1,995 to $8,000+ (mirrors at-need price) plus $140 to $395 admin fee | Up to $15,500 (ATO threshold) | $50 to $100/month indefinitely |
| Locks in price? | Yes, for items in the contract | No (but grows with interest) | No |
| Centrelink exempt? | Varies by state | Yes, up to $15,500 | No |
| Risk if you live 20+ years | Low (price is locked) | Low (capital-guaranteed) | High (premiums likely exceed payout) |
| Risk if provider fails | Medium to high (depends on state trust protections) | Low (capital-guaranteed product) | Low (insurer regulated by APRA) |
| Can lapse? | No | No | Yes (miss a payment, lose everything) |
| Consumer advocate position | Generally positive with caveats | Positive, particularly for pensioners | Negative (ASIC, CHOICE, Consumer Action Law Centre) |
What to check before signing anything
For a prepaid plan:
- Get a written list of exactly what is included in the contract.
- Ask what happens to your funds if the provider closes or is sold.
- Check whether your state requires trust-based protection of prepaid funds.
- Ask what happens if you want to transfer the plan to a different provider.
- Confirm the administration fee and whether it is deducted from your prepaid amount or charged separately.
For a funeral bond:
- Confirm the current interest rate and whether it is fixed or variable.
- Check the ATO threshold (currently $15,500, indexed) and confirm your bond does not exceed it if pension exemption matters to you.
- Understand the nominated funeral director arrangement: is it locked to one provider or flexible?
- Ask about the bond provider's fees and whether they are deducted from your balance.
For funeral insurance (if you still want to proceed):
- Calculate total premiums you will pay over 10, 15, and 20 years and compare to the payout amount.
- Check the waiting period and what happens if you die during it.
- Check what happens if you miss a payment (grace period, cancellation terms).
- Ask whether premiums increase with age (some policies step up premiums annually).
- Consider whether a savings account would produce a better outcome at the same monthly contribution.
The savings account alternative
ASIC MoneySmart suggests that for many Australians, putting the equivalent monthly amount into a dedicated savings account is a better strategy than funeral insurance. You keep full control of the money. It cannot lapse. If you die 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
Is a prepaid funeral plan worth it?
It can be, if you want to lock in today's prices and have a lump sum available. The main risks are provider insolvency (check state trust protections), items not covered by the contract being charged as extras, and admin fees of $140 to $395.
What is a funeral bond?
A capital-guaranteed investment for funeral costs. You invest a lump sum (up to $15,500, indexed annually by the ATO), it earns interest, and the funds are released to a nominated funeral director on your death. Exempt from the Centrelink and DVA pension asset test.
Is funeral insurance a good idea?
Consumer advocates (ASIC MoneySmart, Consumer Action Law Centre, CHOICE) consistently warn against it. Premiums often exceed the payout over time, policies lapse if you miss a payment, and there are waiting periods. ASIC explicitly states that premiums often exceed the benefit.
What is the difference between a funeral bond and funeral insurance?
A bond is a one-off lump sum investment (capital-guaranteed, no lapse risk, Centrelink exempt). Insurance is ongoing monthly premiums where total payments can exceed the payout, and the policy can be cancelled if you miss a payment.
What happens if my prepaid provider goes out of business?
It depends on your state. Some states require trust-based protection of prepaid funds; others have weaker rules. Check before signing.
Are funeral bonds exempt from the pension asset test?
Yes, up to the ATO threshold of $15,500 (indexed annually). This applies to both Centrelink and DVA pension assessments.
How much does a prepaid funeral cost?
Prepaid prices mirror at-need prices plus an admin fee ($140 to $395). Prepaid direct cremation starts from around $1,995 at budget providers. Advertised prepaid direct cremation packages at mid-range providers typically fall between $4,000 and $4,555.
Can I change my prepaid plan to a different provider?
This depends on the contract terms. Some plans allow transfer (sometimes with a transfer fee); others lock you in. Ask before signing.
When you are ready
This guide is general information to help Australian families plan, compiled and editorially reviewed by the Funerals Direct team from publicly available sources. It is not professional, legal, or financial advice. Funeral prices change and vary by provider, region, and circumstances - always request an itemised written quote. For prepaid funerals, funeral bonds, or funeral insurance, speak with an independent financial adviser or a free financial counsellor on 1800 007 007.
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