The difference between funeral insurance & life insurance

When it comes to planning for the future, many people often wonder what is the difference between funeral insurance and life insurance, as understanding these two types of cover can be essential for effective financial planning.

Considering we offer both products, we feel well prepared to answer this one. Let’s dive in. 

What is funeral insurance? 

Funeral insurance, in a nutshell, can offer a payout that is designed to cover the costs of your funeral should you pass away. 

When comparing funeral insurance policies, there are options to choose how much cover (how much of a payout) your loved ones can receive in this event, generally up to $30,000. So, you could opt for just enough for a no-frills send-off, or you could set up a policy that offers a bigger benefit amount so your funeral can have all the bells and whistles, from lavish flower arrangements to a big feast for everyone in attendance. 

The benefits of funeral insurance 

The main benefit of funeral insurance is not for you – but for your loved ones. Because funerals are costly affairs (the average cost of a burial is $10,206 and a cremation is $7,316), and it could be a scramble for your loved ones to find the funds to cover these events. 

These costs could be paid for from your estate (your savings and assets such as a car or your home). However, you might prefer that these savings go to the beneficiary named in your will. It’s also possible that your estate doesn’t have enough funds to cover a funeral, and your family may be required to find the money to pay for the event. Especially if your passing is unexpected. 

So, how does funeral insurance work? All of that basically just means funeral insurance provides peace of mind that when you pass on, your loved ones are covered to proceed with your wishes for your farewell. 

What is life insurance? 

Life insurance is a type of insurance policy that provides a lump sum payout in the event of your death or if you were to receive a terminal illness diagnosis (usually with less than 12 or 24 months to live). 

You can opt for different levels of cover. With Seniors Life Insurance you might choose a more modest benefit amount such as $10,000, or a higher benefit amount of $200,000, depending on what you think you or your family might need should the worst occur. 

The benefits of life insurance 

Think about all the costs you bear in life – perhaps you’re paying off a mortgage, covering a child’s university expenses, looking after elderly parents, or just about anything else. 

If you’ve ever worried about what will happen should you pass away and could no longer make those payments, a life insurance policy could offer plenty of benefits for you. It could help to cover some – or all – of those costs, so those relying on you can get some assistance with financial strain on top of the emotional toll of losing you. 

What are some of the differences between funeral insurance and life insurance? 

While funeral insurance and life insurance have their similarities, they are different in a few key ways. 

Importantly, funeral insurance is designed specifically to cover the costs of a funeral. Life insurance, on the other hand, is designed to be much more wide ranging (with the option of a higher cover amount), and help with whatever financial needs your family might have after you pass (this can include funeral costs, but also things like mortgage payments).  

Applications for funeral insurance policies are generally guaranteed acceptance, meaning individuals may be able to secure cover without medical exams or health questions, giving it potential to be a more accessible form of insurance compared to life insurance. Typically, the benefit amount for life insurance policies are higher than funeral insurance as well, since they are expected to cover more expenses, and therefore have an in depth underwriting process to apply for the cover.

Both insurance policy's can offer cover in the event you suffer a terminal illness, however they may offer different periods of cover. Funeral insurance typically offers cover for a diagnosis of 12 months or less to live while life insurance is typically a diagnosis of 24 months or less to live, either way the potential payout will go directly to you, helping you make the most of your time left.

Funeral and life insurance also come with considerations such as a risk of overpayment, where premiums paid may exceed the benefit amount, and waiting periods. 

Making the decision

Deciding which type of insurance is best suited for you and your family is an important decision, so you may prefer to speak to a financial advisor to determine the best options before deciding on a policy. This is general information only.

To get started, visit our website to request a quote for Seniors Life Insurance and Seniors Funeral Insurance or you can utilise our online cost calculator to help you decide how much you might need. 

12 Nov 2024