There are many choices available for pre-financing your funeral. The most important thing to do, says the Australian Funeral Directors Association (AFDA), is to explore and research all the available options.
Funeral arrangements made at any stage of life can be a challenging task that many people simply want to avoid. This is often due to funeral arrangements having to be made with little or no warning, a time when the ability to make choices over time are influenced by the immediacy of need. For most people within our communities, they often have no prior experience in organising a funeral and little knowledge of what to do.
Over many years, funeral directors have assisted families by providing a range of services which allow choices to be made that result in a funeral that is conducted professionally and with dignity. One key element of this service is a pre-paid funeral which not only attends to the individual needs of families, but also considers their financial circumstances.
What Pre-Paid options are there?
PRE-PAID FUNERAL PLAN
In simplest terms a Pre-Paid Funeral Plan is where the family and funeral director arrange all of the funeral elements under contract at today’s price. The cost of the funeral is fixed, regardless of future price increases.
Key points include:
- Fix the price of your funeral based on today’s prices
- Ensure that your exact wishes are made known and are carried out
- Maximise your pension entitlement – as money spent on a Pre-Paid Funeral
- Plan is not subject to the income and assets test or the deemed earnings rules (according to current legislation)
- Pre-paying provides reassurance for you and your family
A Funeral Bond is a special purpose way to set aside money to help cover your eventual funeral costs. Money invested in a bond can only be used for the purpose of meeting funeral expenses and is only paid out upon death. Funeral Bonds are considered to be a very secure investment as well as providing greater flexibility than a Pre-Paid Funeral Plan.
Key Points include:
- Capital guaranteed
- Flexible and portable investment that does not tie you to a fixed location
- Earns interest over time, increasing the capital base and does not affect your personal income tax position
- Funeral pricing is determined by the actual prices at the time of death
- Social Security and Veteran’s Affairs exempt money invested in the bond from government means testing
The insurance industry also offer a product that has become known as ‘Funeral Insurance’ which is regularly advertised on television and radio, although with insurance products there is no requirement for this to be spent on a funeral service. Typically these insurance products will only attract a small premium that is usually an easily affordable expense; however research has shown that as premiums rise and accumulate as you age the cumulative premiums paid will likely exceed the benefit paid within 6-7 years.
Key Points include:
- Designed to meet sudden and unexpected funeral costs
- Only covers death by accident in the first twelve months
- Premiums can substantially exceed the payable benefit
- Premiums are an ongoing and increasing expense that must be met or the policy becomes void
- Insurance companies are not able to provide up-to-date advice on the actual cost of a funeral
HOW IS MY INVESTMENT PROTECTED?
The States of New South Wales, South Australia, Tasmania and Victoria have enacted specific State legislation that regulates the manner in which pre-paid funeral funds are invested. This is to ensure that monies paid to a funeral director for the purpose of a funeral to be delivered at a future date are managed independently of the funeral director. This ensures that the funds are protected in the event that a funeral business ceases trading or is acquired by another business. Such legislation has not been enacted in the Australian Capital Territory, Northern Territory, Queensland or Western Australia.
In many cases the financial/investment company that invests pre-paid funeral monies for and on behalf of the funeral company will issue a Capital Guarantee, ensuring that the principal investment amount is fully protected from unforseen losses.
PAYMENT AND ADMINISTRATION
Payment of a Pre-Paid Funeral Plan or bond may be made in one lump sum payment or through a structured payment plan and this is an important question to clearly ascertain before signing up. Another very important element is to ensure that your family is advised that you have entered into a pre-paid funeral contract and that funeral arrangements have been made in advance. Many families are unaware of pre-paid arrangements and this can cause confusion at the time of death. Copies of the pre-paid funeral contract should be provided to members of your family, and filed with your Will and other important documents. When appointing a person to be your executor it is important they also know that you have a Pre-Paid Funeral Plan or Funeral Bond.
HOW DO I ORGANISE A PRE-PAID FUNERAL?
If you are considering making some or all of the arrangements for your funeral, the best place to start is through your local AFDA Member Funeral Company. All AFDA Members can assist you by providing detailed information and advice; including any information pertaining to your specific State or Territory.
WHAT QUESTIONS SHOULD I ASK?
Anyone considering entering into a pre-paid arrangement for their funeral should conduct research on the available options before committing any money into a policy/contract that may not suit their needs. Common questions that should be asked of the funeral director include:
- Are you an AFDA Member firm?
- What funeral pre-payment options do you have available?
- Which financial/investment management company do you use?
- Is my investment Capital Guaranteed?
- What payment options are available?
- What happens if I move town/city/interstate/international?
- What elements of the funeral arrangement can I change or alter in the future if my situation changes?
- What are the elements of a funeral/funeral cost breakdown?
In general terms there are five (5) cost components of a funeral service that will ultimately be used to calculate the total cost.
- Professional Service Fee charged by the Funeral Director which includes all elements involved in arranging, planning and conducting a funeral
- Coffin/Casket fee
- Cemetery or Crematorium fees
- Funeral home service options which may include: audio visual presentations, service booklets, thank you cards, memorial books, etc.
- Disbursements payable to third parties which may include: newspaper notices, floral tributes, celebrant or clergy fees, music and catering, etc.
It is very important to note that the costs associated with a funeral can vary greatly through the numerous choices that are available, which allow a true reflection of personal, cultural, religious and/or spiritual needs.
The Australian Funeral Directors Association (AFDA) was established in 1935 and is the only national funeral service organisation, with Member firms in every State and Territory. For more information or to find an accredited member of the AFDA in your area, go to www.afda.org.au or call 1300 888 188.