Funeral insurance vs prepaid funeral plan: What's best for me?

Planning your funeral in advance is one of the kindest things you can do for your family. A prepaid funeral, such as Bare Prepaid Cremation, locks in the cost of your arrangement at today's prices. It is not an insurance product, which means once your arrangement is paid, there are no more charges.

Funeral insurance is another option some people consider, though it can end up costing more in premiums over time than your loved ones ever receive in benefits. Funeral bonds sit somewhere between the two.

In this article, we explain how a prepaid funeral plan works, then compare it to funeral insurance, so you can make the most informed choice about planning ahead without getting ripped off.

How does a prepaid funeral plan work?

One of the biggest advantages of a prepaid plan is that it secures your chosen services at today’s prices, protecting you from future cost increases and giving you peace of mind that the price you agree on now will not rise over time. Once the plan is fully paid, there are no further costs for you or your family, and the services are guaranteed to be delivered as agreed when the time comes.

The money you pay into a prepaid plan is securely held in a regulated trust or funeral bond until the time of need. This ensures your funds are protected and can only be accessed when the funeral is carried out. It’s always best to obtain a written, itemised contract before you pay. The document should specify each service included and the total cost so that you understand exactly what’s covered.

Paying for a prepaid funeral plan can also help you maintain eligibility for your Age Pension or other Centrelink payments. Funeral costs you pay for in advance generally don’t count in your assets test for payments from Centrelink, although there are some exceptions. For more information, visit Services Australia or speak with a financial adviser.

A Bare Prepaid Cremation also guarantees that the costs of a funeral will be covered in any circumstance, regardless of how the person died.

Funeral insurance vs prepaid funeral plans

While both aim to make things easier for your loved ones, they do so in different ways. Funeral insurance provides a payout that your family can use to cover costs as needed, giving them flexibility, whereas a prepaid funeral plan lets you organise and pay for your funeral in advance, ensuring your wishes are followed and reducing the decisions your family will need to make.

Some people also consider funeral bonds as an alternative. A funeral bond is an investment that allows you to save towards future funeral costs but does not include any pre-arranged services or guarantee a fixed price. In many prepaid plans, funds are placed in a funeral bond. These funds may earn modest interest over time and are protected under legislation, ensuring the capital value is maintained. The difference between a funeral bond and a prepaid plan is that a bond simply sets aside money for future use, while a prepaid plan specifies services and costs in a binding contract.

What is funeral insurance?

Funeral insurance is a policy designed to be paid out to your chosen beneficiary to help pay for your funeral and associated expenses when you die.

Policies are set up to cover costs associated with a traditional ceremony. Consequently, premiums can end up costing thousands more than a prepaid funeral. Funeral insurance was originally sold to fill an important niche for people – to create certainty and comfort that when they pass away, there will be money available to cover the costs.

The difference between life insurance and funeral insurance

Life insurance might sound similar to funeral insurance because a lump sum will be paid out to your nominated beneficiary at your passing, however unlike funeral insurance, this sum will cover so much more than just a funeral.

Life insurance can also be paid out in the event of terminal illness, meaning you and your family can be paid as a form of income replacement, as well as to cover debt, a mortgage or whatever financial support you need. Depending on your level of cover, a life insurance policy can typically pay out anywhere from $100,000 up to around $1.5 million, with some insurers offering higher limits case by case

The downsides to life insurance are that it can be expensive and exclusionary based on age, health and medical history, so it generally isn’t an option for people later in their life.

Life insurance is included in many superannuation plans, so be sure to check if you’re already covered. 

How does funeral insurance work?

Understanding how funeral insurance works can be confusing. It’s inconsistent between providers and premiums generally go up as you get older.

According to Canstar, policyholders usually make either fortnightly or monthly premium payments in exchange for cover, which typically ranges from $3,000 to $15,000. Premiums vary depending on factors such as your age, smoking status, the amount of cover you choose, whether you select stepped or level premiums, and your insurer.

Premiums generally increase over time as you get older, which can become too expensive to maintain. There are many different providers to choose from and it pays to shop around.

It is important to understand that funeral insurance is NOT a method of saving for your funeral costs. Instead, policyholders are buying insurance to cover expenses to the value of what a funeral may cost in the future, rather than the cash being held in a bond or savings account in their name, for future access.

With a funeral insurance premium, there is no requirement that the money will be used to pay for your funeral. The beneficiary has complete discretion over how the insurance payout is spent. It might not end up being used for your funeral at all. Funeral insurance policies can be complex, and the costs often increase over time. For people who prefer certainty and control over their future arrangements, a prepaid funeral plan might be a better alternative.

Who is eligible for funeral insurance?

Any Australian resident over the age of 18 can take out a funeral insurance policy, as long as they meet the provider’s eligibility criteria.

Who is eligible to take out a funeral insurance policy?

Most funeral insurance policies have eligibility requirements, although these vary between insurers. Some policies offer guaranteed acceptance for eligible Australians within the insurer's entry age limits and do not require medical examinations or health questions. However, some insurers may apply additional eligibility criteria or waiting periods. According to Finder, the maximum entry age for funeral insurance is typically 79 or 80 years, depending on the provider.

In contrast, a Bare Prepaid Cremation plan is available to any Australian resident. There is no eligibility criteria. There's no upper age limit or health check required either, any adult can purchase it, regardless of age or health.

Who is eligible to claim a funeral insurance policy?

Funeral insurance policies differ between providers in the way eligibility to make claims are determined. Many providers have strict requirements that must be met before any payout is awarded to a policyholder’s nominated beneficiaries.

Before taking out a funeral insurance policy, or deciding if you should continue paying a current premium, it's important to understand what is covered and what is not.

Policies are generally subject to the following clauses:

• A 12 month ‘accidental death only’ period. This means that if you die within the first 12 months of taking out your funeral insurance policy, your beneficiaries will not be paid out unless it was an accident. So if the death was a result of a medical condition - for example, cancer or heart attack - or if it was a suicide, the policy won’t be paid out.
• No payment of a terminal illness benefit if you are diagnosed with a terminal illness within the first 12 months of the policy being held or reinstated.

Do costs increase over the years?

The cost of funeral insurance is calculated based on several factors, including your age, gender, where you live and whether or not you smoke. Prices also vary between providers and whether you choose a ‘stepped’ or ‘level’ premium. According to Finder, a $10,000 funeral insurance policy typically costs between around $55 and $150 per month.

With stepped premiums, your premium is recalculated each year based on factors such as your age, gender and sum insured. While this option usually starts with lower premiums, the amount you pay generally increases as you get older.

Level premiums, on the other hand, are set when you first take out the policy and don't increase simply because you age. However, they usually start at a higher cost than stepped premiums, so it's worth comparing policies before deciding.

Regardless of the premium structure, MoneySmart warns that because funeral insurance premiums are paid for as long as you keep the policy, it's possible to pay more in premiums over your lifetime than your beneficiaries eventually receive. This is particularly important to consider if you're taking out cover later in life or expect to hold the policy for many years. For some people, rising premiums may eventually become difficult to afford. If payments stop and the policy lapses, you could lose the cover you've paid for without receiving a payout.

In contrast, the national average cost of a prepaid cremation with Bare as of May 2026 is about $167.46* per month for two years (actual prices vary by location). Alternatively, you can also choose to pay the full amount upfront, which averages around $3,869*. And once it’s paid, it’s paid!

*These are the average prices of a Bare Prepaid Cremation, taken as the average of all zones of Bare’s servicing as of May 2026. Please note that prices vary depending on location and are subject to increase over time. For an accurate quote and cost breakdown for your location, please visit our quote page..

How to claim funeral insurance?

Each provider has a different process for how to claim funeral insurance. But generally, once the policyholder has died, the beneficiary contacts the insurance provider to make a claim. They will usually need to provide a certified copy of the policyholder’s death certificate and proof of their age at death, plus proof of their own identity and relationship with the deceased person. There is usually a claim form to be filled out and submitted for review.

The claim is subject to the insurance provider’s discretion and it can take several days before any benefit is released.

What else should you know before buying funeral insurance?

Concerns about funeral insurance are not new.  The Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry found that some funeral expenses policies provided poor value for consumers, noting that providers collected close to $315 million in premiums in one financial year while paying out around $103 million in claims.  

Here are some other facts you should know before paying for funeral insurance:

• Many funds increase your premiums and policy coverage amount annually.
• If you cancel your policy before death (or reaching the Early Payout date if offered in your policy), you won’t get a cent back.
• In most policies, there is no cap on what you may pay over the term of the policy. So if you live a long life, there’s a chance you could end up paying far more over the years than the benefit payout.
• The long-term affordability of the policy isn’t based on your current income, but the income or pension you are expected to have in the future.  

It’s important to be aware of which exclusions or factors apply to the policy you are considering or your current premium.

Given these drawbacks, many Australians look at other alternative options to plan ahead, such as prepaid funerals.

What if I’m already paying funeral insurance?

For those who specifically want to cover their funeral costs, there are only rare circumstances where funeral insurance makes sense.

Typically, if you are anticipating passing in the short term and already have an existing policy, you may be better continuing to make the payments. In the majority of other circumstances, there are much better options in the market to support your family when you pass away, including investing in a funeral bond, saving incrementally in a term deposit, or prepaying your funeral.

If you’re currently paying funeral insurance and considering a prepaid funeral plan, you have a few options:

The first is to cancel your policy and switch to a prepaid funeral arrangement with a funeral provider like Bare. This means you forfeit your potential payout, but it’s likely the cheapest option if you’re planning on not needing a funeral for a few years or more.  

Or instead of cancelling altogether, you might continue paying your funeral insurance premiums AND also take out a prepaid funeral plan. That way, if you’ve already prepaid your funeral, your beneficiary would instead keep the cash benefit to use however they wish - towards a mortgage, to buy a new car, a holiday, or your grandchildren’s education.

Alternatively, you can keep paying your funeral insurance as normal, but advise your family to use some of the payout to arrange a simple cremation with Bare when the time comes. This is what we recommend if you’re expecting you might need a funeral in the next three years or so. If you prefer to wait until the time comes, we suggest putting a request in your Will or Advance Care Directive that your family applies the policy payout to cover an arrangement with Bare.

If you’re unsure where to start, reach out to Bare prepaid specialists. They can guide you through your options, explain how prepaid plans work, and provide an itemised quote based on your location. Speaking directly with a funeral director who offers prepaid plans is the best way to find what suits your needs and budget.

It’s also a good idea to record and share your personal funeral wishes, such as whether you prefer burial or cremation, the type of service, music, readings, or any special details you’d like included. Discussing these preferences with your family and noting them in your Will or Advance Care Directive helps ensure everything is arranged according to your wishes when the time comes.

If you'd like to chat with our prepaid specialists for a recommendation, feel free to give us a call on 1800 202 901.  .

Frequently asked questions

Is a prepaid funeral plan or a funeral bond better for my Age Pension?
A prepaid funeral plan generally offers a bigger benefit, since there's no cap on the amount exempted from the assets test according to Services Australia, whereas a funeral bond is only exempt up to a set threshold. See our full guide to funeral bonds for the current figure. A bond does give you more flexibility if you're not ready to choose a funeral director yet.

What happens to my prepaid funeral if I move interstate or overseas?
Most Australian prepaid providers can transfer your arrangement or make alternative arrangements if you move. Always check the specific terms in your written contract, and update your provider if you relocate.

Do I have to declare a prepaid funeral or funeral bond to Centrelink?
Generally, yes. It's a good idea to inform Services Australia about any funeral bonds or prepaid funeral arrangements you hold. Even where they are exempt from the Age Pension assets and income tests, Centrelink may still need the details to determine whether the exemption applies.

What if I can't afford to prepay the full cost upfront?
Many prepaid funeral providers, including Bare, offer instalment plans so you can spread the cost instead of paying everything upfront. These are commonly paid over one to two years, depending on the provider and plan.

Is funeral insurance ever the right choice?
It can be, particularly if you want your family to receive a cash payout they can use however they need, not just for the funeral. It may also suit people who are comfortable with premiums increasing over time.

Funeral insurance can make more financial sense for someone who expects to pass away sooner rather than later, as they're less likely to pay more in premiums than the policy pays out.

Which option is best for you?

There's no one-size-fits-all answer. The right option depends on your age, health, finances and whether Age Pension eligibility is a consideration.

If certainty is your priority, a prepaid funeral plan can lock in today's prices and ensure your arrangements are taken care of in advance. If flexibility matters more, funeral insurance is the only option that provides a cash payout your family can use for any purpose, not just funeral expenses. For people receiving or approaching the Age Pension, prepaid funeral plans generally offer the most favourable Centrelink treatment, while funeral bonds may suit those who want to set money aside without committing to a specific provider or service.

Final thoughts on funeral insurance

Funeral insurance is a product that can provide a cash payout to beneficiaries after the policyholder dies, but only if certain criteria are met. Many policies are only of value if the policyholder dies between about two and five years. And there is no guarantee the money will be used for a funeral.

Many premiums are cancelled before they are eligible to be paid out, mostly due to the rising costs over the years and pensioners no longer being able to afford the premiums. Those families won’t ever see a cent of the money already handed over over the years.

We didn't like how vulnerable Australians were getting ripped off with funeral insurance. So we created an affordable prepaid funeral service to take the risk out of end-of-life planning. A Bare prepaid plan guarantees your cremation is paid for, taking the future stress off your family.

Rather than ongoing funeral insurance premiums, once a Bare Prepaid Cremation is paid, it’s guaranteed to cover the full cost of your cremation. You can choose to pay upfront or in monthly installments over two years. There are no recurring charges beyond the length of your instalment plan and nothing more to pay later on. Your cremation arrangement will be carried out exactly as outlined in your prepaid contract, giving you and your family complete peace of mind.

You can find out how to plan for the future without getting ripped off, by clicking the button below, or calling 1800 202 901.

Disclaimer: This article and all information and pricing within it was accurate at the time of writing. Please see bare.com.au or linked sources for current pricing. This article provides general information only and does not constitute professional advice. Please consult a qualified expert for guidance specific to your situation.