The difference between funeral insurance & term life insurance

When it comes to planning for the future, many people often wonder what is the difference between funeral insurance and term life insurance, as understanding these two types of cover is 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 can be a scramble for your loved ones to find the funds to cover these events. 

Without funeral insurance, 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 struggle 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 term life insurance? 

Term life insurance is a specific type of life insurance product that helps covers you for a specific time frame, should you pass away or become terminally ill during that time.  

Typically, that specified time frame is for a certain number of years, or until you reach a certain age. 

Much like funeral insurance, you can also opt for different levels of cover. You might choose a more modest benefit amount such as $10,000, or a higher benefit amount of $100,000, depending on what you think you or your family might need should the worst occur. 

The benefits of term 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 term 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 term life insurance? 

While funeral insurance and term 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. Term 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). Funeral insurance typically does not have a term associated with it, whereas Term Life Insurance does. 

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 term life insurance. 

Typically, the benefit amount for term life insurance policies are higher than funeral insurance as well, since they are expected to cover more expenses.   

However, both term life insurance and funeral insurance policies can also cover a terminal illness diagnosis with 12 months or less to live, so the potential payout will go directly to you, helping you make the most of your time left.

Funeral and term life insurance also comes 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 Term 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