When comparing life insurance vs funeral insurance, you need to consider the costs and benefits. Both provide a lump-sum benefit when you pass away, but funeral insurance only pays out enough to cover the costs of your funeral. Life insurance, on the other hand, provides you with long-term financial security.
We'll help you decide which is the better option for you.
The main difference between life insurance and funeral cover is this:
If you want insurance that pays for more than just your funeral, life insurance is the better option. We've listed some more key differences below.
| Key Differences | Funeral Insurance | Life Insurance |
|---|---|---|
| How does it pay you? | In one lump-sum | In one lump-sum |
| When does it pay out? | When you pass away or in some cases, if you become terminally ill | When you pass away or become terminally ill |
| How large is the payout amount? | Between $3,000 and $15,000 | Between $100,000 and $15 million |
| How soon does it pay out? | Usually within 3 and 14 days | If your policy comes with funeral advancement, it should pay out within 14 days of a claim being submitted. The full insurance benefit will take longer, but most are processed within eight weeks, according to The Australian Prudential Regulation Authority (APRA) |
| What can it pay for? | Your funeral, including the casket or urn, flowers, transport and catering. | Anything your family (beneficiaries) wants, including paying off the mortgage, clearing debts and covering their everyday living expenses |
| How are my premiums calculated? | There's little to no medical underwriting (E.g. they're not based on your health). You can choose between stepped (they go up each year) and level (they stay the same) premiums. | Your age, health, medical history, smoking status and the benefit amount you choose. You'll usually have the option of level or stepped premiums. |
| Are premiums capped? | Sometimes you get a value promise to ensure you don't pay more in premiums than the cover amount. | No |
| What added benefits does it sometimes come with? |
| |
| Are the premiums tax deductible? | No | No |
| Is the benefit payment taxed? | No, you shouldn't have to pay tax on the benefit payout you receive. | No, you shouldn't have to pay tax on the benefit payout you receive. |
| What's the application process like? | Relatively straightforward. You need to meet age and residency requirements and usually no medical questions are required. | Acceptance isn't guaranteed. You'll be asked to disclose your age, smoking status and medical history, which will determine whether you will be covered or not and the cost of your premiums. |
Life insurance is not as expensive as you might imagine. In fact, a policy is likely to cost you around the same per month as funeral cover. Take a look at the example below:
| Policy | Weekly cost |
|---|---|
| $8,000 funeral Insurance policy | $8.63 |
| $500,000 life Insurance policy | $12.19 |
Life insurance cost based on the average of 5 brands available on Finder for a 40-year old male, non-smoker with no medical conditions. Funeral insurance price based on the initial premium for the first year for a 40-year old. Quotes last checked in March 2021.
While the costs may vary based on your personal circumstances, it's safe to say that there's generally not a huge difference in price if you're relatively young and healthy. This is despite the fact that life insurance provides a substantially larger benefit amount.
The reason? Funeral insurance policies have little or no medical underwriting, so premium costs are distributed fairly evenly no matter how healthy or unhealthy you are.
If you're older and have some pre-existing medical conditions, this means you probably won't pay as much for funeral insurance as you would life insurance, but if you're fit and healthy, you won't be able to take advantage of lower premiums like you can with life insurance.
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Still not sure what's the better option for you? Consider the pros and cons:
Probably not. In Australia, most life insurance policies have a funeral component. This is generally a funeral advancement benefit in the region of $10,000 that pays out a portion of your policy within 14 days so that your family doesn't need to worry about paying for the funeral. Check with your provider if you have cover in place. If you do, you won't need to take out additional cover. If you don't, find out how much extra it would cost to add that to your policy.
If you're not concerned about a funeral advancement benefit, it still doesn't mean you need funeral insurance. A life insurance lump sum payout is generally more than enough to cover funeral expenses, among other things, when you die.
Funeral insurance is worth considering if:
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