How Does Funeral Insurance Work?

Funeral Insurance is widely advertised on television. It provides for a lump sum payment to your beneficiary to cover your funeral expenses. You decide the level of cover you want and provide personal details to the insurance company to help them calculate your premium. After taking out a policy, you make regular payments, much as you would to insure your house or your car. Policies often only cover death by accident for the first twelve months. Before taking out a funeral insurance policy, you need to understand exactly what it is and make sure it is right for you.


Some of the things you need to consider before taking a funeral insurance policy:


• Is there any guarantee that the money will be used for payment of funeral expenses? Or will the beneficiary be able to spend it as they wish?

• Is the regular amount you pay the same over time or does it rise as you get older?

• Will you be able to afford to keep making payments into the future? For example, after you retire, your income may be smaller or your other expenses may increase.

• How long do you need to keep paying? Is there an ending date?

• What is the total cost of the policy likely to be over your lifetime?

• How does this compare to the total cost of a funeral? Ask your funeral director what expenses are likely to be. They could be significantly less than commercial advertising may lead you to believe.

• What happens to your cover if you have to stop or miss some payments?

• Is there a waiting period before your cover is effective?

• Would you be better off making affordable instalment payments to a funeral bond where you have control over the amount paid in and can cease payments when you reach your estimated funeral expense amount?