What are Funeral Bonds?

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 to 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:

1. What is a Funeral Bond?
2. Common Features of Funeral Bonds
3. Advantages of Funeral Bonds
4. Disadvantages of Funeral Bonds
5. How Much Does a Funeral Bond Cost?
6. Funeral Bond Providers in Australia
7. Red Flags & Fine Print
8. Alternatives to Funeral Bonds
9. FAQs

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 installment funeral bonds
• Lump-sum funeral bonds with optional top-ups

Monthly installment funeral bond

Under a monthly installment plan, you are required to contribute a minimum installment 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 several 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 can 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 they allow 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 dies 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 upfront 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 installment funeral bonds normally require you to start with a $100 deposit with a minimum installment 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 several different funeral bond providers in Australia, each with different funeral bond products and terms, so be sure to do your research.

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 installment 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 the 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.

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 and make several 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 installments). This means bigger payments than a $50/month funeral bond contribution over 10 years, for example.

9. FAQs

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 toward 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 installment?

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 is 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 continue to contribute instalments until that time.

What happens if there is money left over after the funeral?

If there is money left over

. Thet are chosen for their knowledge, quality, service, personalisation and experience. They go above and beyond, and will take the time to support the family.

For more information or to make contact with a trusted Independent funeral director, call eziFunerals on 1300 236 402 or visit www.ezifunerals.com.au.

Peter Erceg

Peter Erceg is the Owner and Founder of eziFunerals. He has had a long history within the funeral industry, and is a published author of ‘What Kind Of Funeral: A self help guide to planning a meaningful funeral’. Prior to eziFunerals, Peter worked in the public sector and health industry for more than 30 years. The views and opinions expressed on posts are those of the author and do not necessarily reflect the opinions of eziFunerals and members.