It can sometimes be confusing to tell life insurance and funeral insurance apart. Understanding which type of cover is right for your circumstances is important to protecting your family’s financial future.
This guide will explain how each works and help you decide which option, or combination, best suits your needs.
Which is best: life insurance or funeral insurance?
There’s no one right answer for which is best as life insurance and funeral insurance serve different purposes.
- Life insurance is designed to provide some financial support for your family when you pass away. It can help cover day-to-day expenses, debts, mortgage payments, and any other bills
- Funeral insurance is designed to cover the costs associated with your funeral and any expenses like funeral director fees, coffin or cremation costs, or burial plot expenses
The ‘best’ option depends on your personal circumstances, life stage, and financial priorities.
If your main concern is easing the financial stress of funeral costs for your loved ones, funeral insurance may be the right choice for you.
If you want to provide long-term financial security for your loved ones, life insurance could be the better choice.
Does funeral insurance have to be used only for funeral costs?
Most funeral insurance policies are intended to cover funeral-related expenses, but the payout is usually flexible.
Your loved ones can choose to spend it on other costs like settling outstanding debts, paying medical bills, or organising travel arrangements for relatives attending the funeral.
How much do funerals cost?
Funeral costs in Australia can differ quite a bit depending on the kind of service you choose, whether you prefer burial or cremation, and any extras you might want to include.
According to Moneysmart, a basic cremation can start at around $4,000 AUD, while a more elaborate burial can cost up to $15,000 AUD or more.
For a clearer picture of what these costs might be in 2025, see the Funeral Costs Report from Golden Insurance.
Some of the key expenses to keep in mind include:
- Funeral director fees
- Coffin or casket
- Cemetery plot fees
- Additional items like flowers and obituary notices
How much does funeral insurance cost?
The cost of your funeral insurance can vary depending on a range of factors.
Some of the things influencing how much you pay are:
Age: Policies tend to be cheaper if you take them out earlier
Cover amount: The higher the payout you want, the higher your premiums will be
Lifestyle: Activities or habits considered higher risk, like smoking, can increase the cost of your insurance
Premium type: The type of premium you choose, whether it’s level or stepped, will also affect the price
It’s important to keep in mind that what you’re really paying for is peace of mind and financial support for your loved ones when they need it most.
Do I need funeral insurance?
Funeral insurance might not be the right fit for everyone.
When deciding if it’s right for you, think about whether you have specific funeral wishes, limited savings to cover the costs, and whether you want to ease the financial burden on your family when the time comes.
Do I need both funeral and life insurance?
Some people decide to get both but what matters is your individual wishes and your financial situation.
To help you decide, we’ll outline some pros and cons of each so you can get a clearer picture of which option will work best for you.
Benefits of life insurance
- Financial security for your loved ones
- Cover daily expenses, bills, or education costs
- Can be used as a gift for your family
Disadvantages of life insurance
- Monthly premiums can be expensive
- No payout if you outlive the term
- Some policies don’t allow you to easily adjust your cover as your needs change
Benefits of funeral insurance
- With funds readily available, the funeral planning process can be smoother for your family
- Peace of mind knowing your loved ones won’t carry the burden of funeral expenses
- Most don’t require any medical exam to get cover
Disadvantages of funeral insurance
- Doesn’t cover broader financial needs for your family
- Your payout may not end up covering all your funeral costs
- Some policies have premiums that increase with age. With Dignity Insurance, you choose a fixed fortnightly or monthly premium that won’t change unless you decide to adjust your cover
What you need to know about eligibility, taxes, and making a claim
Before taking out life or funeral insurance, it helps to understand who can apply, how payouts are taxed, and what the claims process involves.
Eligibility: Funeral insurance is generally available to Australians up to around 80 years old, and most policies don’t require a medical exam. Life insurance eligibility varies by insurer and often depends on your age, health, and lifestyle.
Tax: In Australia, funeral insurance payouts are typically tax-free. However, individual circumstances can vary, so it’s a good idea to seek professional tax advice to understand how the rules may apply to you.
Making a claim: Funeral insurance claims are often processed quicker to help cover immediate expenses. Life insurance claims may take longer depending on the policy type and circumstances.
Choosing between life insurance and funeral insurance comes down to your priorities. If you want to make sure your funeral is covered, funeral insurance is the simplest option.
If you want to provide financial security for your family beyond your funeral, life insurance may be the better choice. Getting both is always an option if you want the best possible financial protection for your family’s future.
Why choose Dignity Funeral Insurance?
Getting a Dignity Funeral Insurance policy is simple and stress-free. There are no medical exams or blood tests, and if you’re an Australian resident aged 50 to 80, acceptance is guaranteed.
Having a policy in place means you can relax knowing your final wishes will be honoured and your family may be better able to handle unexpected costs.
We know talking about end-of-life planning isn’t easy, so we keep everything straightforward to make it a little less daunting.
Call us today to explore your options and take that first step towards peace of mind.