A funeral bond is an investment product that can help you save for a funeral. While not as financially effective as a prepaid funeral, a funeral bond can be a good option for individuals looking for save for their funeral without having to work through all of the plans and details.
This guide sets out everything you need to know when considering and choosing a funeral bond, including:
A funeral bond is a managed investment that helps individuals save for the cost of their funeral. There are 2 common types of funeral bond arrangements:
Under a monthly instalment plan, you are required to contribute a minimum instalment each month (e.g. $50) to be invested along with other funds you have already paid.
Under a lump sum plan, you are required to contribute a minimum lump sum amount (e.g. $500) and have the freedom to top up your funds at any time.
The exact terms of a funeral bond depend on the specific product and its product disclosure statement. However, funeral bonds generally have the following common features:
Funeral bonds have a number of advantages:
While not as significant as some of the risks involved when taking out funeral insurance, funeral bonds have some disadvantages:
The “cost” of a funeral bond ultimately depends on how much you want to save and the time frame in which you want to save that money.
For example, if you wanted to save $7,000 in 10 years, you may be advised by your funeral bond provider that, given their history of returns, that target would require an investment of $50/month for 10 years.
In terms of minimum contributions, each funeral bond is different, though as a guideline, monthly instalment funeral bonds normally require you to start with a $100 deposit with a minimum instalment of $42/month, and lump sum funeral bonds normally require you to start with a $500 deposit with a minimum top up of $42.
There are a number of different funeral bond providers in Australia, each with different funeral bond products and terms, so be sure to do your research.
It’s well worth taking the time to compare funeral bonds that are available to find the one that best suits you. Some of the most well known funeral bond providers in Australia include:
For the most part, funeral bonds are a fairly safe product, although you should always be sure to read the Product Disclosure Statement of your funeral bond closely before proceeding. Be sure to look out for the following terms:
All funeral bonds disclose their performance over the past 5 years or more. While historical performance is not necessarily an indicator of future performance, you should still take the time to compare the historical performance of funeral bonds you are considering. When comparing funeral bonds, also be sure to take into account the fees charged for management of the fund as they may offset performance gains.
While a 1-2% difference may not sound like much, the performance of your funeral bond compounded over many years will make a significant difference to your final payout.
Funeral bonds are a sensible investment and a better choice for individuals when compared to funeral insurance. However, in our view, prepaid funerals offer the best option (both financially and practically) for those seeking to plan their funeral.
The main reason prepaid funerals are a better option is because they allow you to lock in today’s prices and ensure that the total cost of the funeral is paid for regardless of inflation and increasing funeral costs over time. Funeral bonds on the other hand rely on the performance of the fund and are exposed to the increasing cost of funerals. For example, you might estimate that $7,000 will be enough to cover your funeral in 10 years’ time, however, if your funeral bond doesn’t perform as stated you may not have $7,000 when the time comes, or if funeral prices rise more than you expect, the funeral might end up costing $9,000, leaving a shortfall that needs to be covered.
Lastly, prepaid funerals also safeguard your family from the emotional stress of having to plan your funeral. Most families find having to guess at what a loved one might have wanted extremely difficult.
For more information about prepaid funerals, see our complete Guide to Prepaid Funeral Plans in Australia.
If prepaid funerals are a better choice than funeral bonds, why would you invest in a funeral bond?
For a full discussion on funeral planning options, see our article on the difference between prepaid funerals, funeral insurance and funeral bonds.
Note: The following answers are generalised and terms may be different under your particular funeral bond, so be sure to read the Product Disclosure Statement.
The key benefits of funeral bonds over savings accounts are:
No. Once the cooling period has elapsed, money cannot be withdrawn or accessed until you have passed away.
Unlike funeral insurance, if you miss a payment you do not forfeit the benefit of all of the funds contributed up until that point, and the funds are still held for your benefit upon death.
Funeral bonds are a safe investment that are capital guaranteed (meaning your investment can never be less than the amounts you have contributed). They are also regulated by state and Commonwealth legislation to ensure that investments are not unacceptably risky.
Yes, while most funeral bonds allow for joint ownership, they also specify that only one funeral can be funded by the amounts accrued under the funeral bond. This means that upon their partner’s death, the surviving member will have to choose whether or not to claim the amounts saved, or wait until their own passing. Because of this, it may make sense to take out 2 individual funeral bonds rather than a joint funeral bond.
Yes, most funeral bonds allow you to nominate a preferred funeral director and change your preference at any time.
The funeral bond will still be held for your benefit upon death and you may still continue to contribute instalments until that time.
If there is money leftover after paying all funeral costs it is paid to your estate.
We hope you have found this guide to funeral bonds helpful. If you have any questions, please feel free to email us at firstname.lastname@example.org or leave us a message in the comments section below.
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