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:
- What is a Funeral Bond?
- Common Features of Funeral Bonds
- Advantages of Funeral Bonds
- Disadvantages of Funeral Bonds
- How Much Does a Funeral Bond Cost?
- Funeral Bond Providers in Australia
- Red Flags & Fine Print
- Alternatives to Funeral Bonds
1. What is a Funeral Bond?
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:
- Monthly instalment funeral bonds
- Lump sum funeral bonds with optional top-ups
Monthly instalment funeral bond
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.
Lump sum funeral bond with optional top-ups
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.
2. Common Features of Funeral Bonds
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:
- Invested funds must be held by an independently managed funeral fund
- Funds can only be released after you have passed away
- Funds can only be used to pay for funeral costs with the remainder going to the estate
- Payment of the funds can only be made to your estate or nominated funeral director
- The interest earned over the life of the product must be added to the capital
3. Advantages of Funeral Bonds
Funeral bonds have a number of advantages:
- Money is secure – Funds (and the companies who manage them) are regulated by Australian laws to ensure investments are prudent.
- Encourage saving – Funds can only be accessed after death, removing the temptation to dip into the account to pay for other life expenses.
- Your savings will continue to grow over time – A funeral bond is an investment. Your funds are managed professionally across a mix of asset classes in a way that is designed to be safe yet also deliver a rate of return that is higher than if you just had your funds sitting in a savings account.
- Centrelink exempts funeral bonds from the assets and income test – Funds held in a funeral bond (up to a maximum of $12,500) are exempted by Centrelink from the assets and income test that is used to assess eligibility for the Aged pension.
- Choice of funeral director – You are able to nominate a preferred funeral director and can change your preferred funeral director at any time.
- You don’t have to think about your funeral today – One of the main advantages of funeral bonds is that it allows you to plan financially for your funeral without having to plan all of the details (which many can find confronting).
4. Disadvantages of Funeral Bonds
While not as significant as some of the risks involved when taking out funeral insurance, funeral bonds have some disadvantages:
- You’re only entitled to what’s in the fund – If you sign up for a bond that will provide you with $6,000 in 10 years but die before then, your estate will only be entitled to the amounts you have paid into the fund and the gains made by investing the money in the fund. This is in contrast to funeral insurance where there is a slight possibility that you may be entitled to a greater sum than you pay if you pass away significantly earlier than expected.
- Not guaranteed to cover the cost of your funeral – Whereas a prepaid funeral will guarantee that you get the funeral you pre-plan by paying the cost up front at today’s prices, a funeral bond does not guarantee that the amount saved and earned under the bond will be enough to cover all funeral expenses when the time comes.
- Not guaranteed to keep up with inflation and rising funeral costs – While the investments made by the funeral bond fund are designed to keep up with inflation and rising funeral costs, your fund may underperform or may not grow quickly enough to match costs.
5. How Much Does a Funeral Bond Cost?
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.
6. Funeral Bond Providers in Australia
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.
Compare Funeral Bonds
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:
- Lifeplan Funeral Bond
- KeyInvest Funeral Bond
- Bendigo Funeral Bond
- Sureplan Funeral Bond
- Funeral Plan Management Funeral Bond
- Foresters Friendly Society Funeral Bond
7. Red Flags & Fine Print
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:
- Is there a minimum starting deposit?
- Is there a minimum top-up or monthly instalment amount?
- Is there a penalty if you miss a payment?
- What happens if you decide to discontinue the bond?
- How much are the fees paid to the investment company?
- How long does it take to be paid the benefit after notification of death?
Compare Historical Performance
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.
8. Alternatives to Funeral Bonds
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.
Advantages of Prepaid Funerals
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.
Why Get a Funeral Bond?
If prepaid funerals are a better choice than funeral bonds, why would you invest in a funeral bond?
- Taking out a prepaid funeral requires you to plan your funeral in advance and make a number of decisions which can be confronting for some. In contrast, a funeral bond allows for the funeral to be taken care of financially (albeit with some risk) without having to plan out the details.
- Prepaid funerals need to be paid for upfront (or within several years if paid in instalments). This means bigger payments than a $50/month funeral bond contribution over 10 years, for example.
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.
Why is a funeral bond better than simply putting that money in a savings account?
The key benefits of funeral bonds over savings accounts are:
- Funeral bonds normally see higher returns than savings accounts
- Funds are not counted towards the assets and incomes test for Centrelink pensioners
- Interest earned by the funeral bond does not count towards your taxable income
Can you withdraw money from a funeral bond?
No. Once the cooling period has elapsed, money cannot be withdrawn or accessed until you have passed away.
What happens if you can’t pay an instalment?
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.
How safe is a funeral bond investment?
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.
Can you arrange for joint ownership of a funeral bond?
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.
Can you nominate a preferred funeral director?
Yes, most funeral bonds allow you to nominate a preferred funeral director and change your preference at any time.
What happens if you move overseas?
The funeral bond will still be held for your benefit upon death and you may still continue to contribute instalments until that time.
What happens if there is money leftover after the funeral?
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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