The difference between Funeral Insurance and Life Insurance
If you want to get the most out of your insurance products, it’s essential to understand what different types of insurance does for you. While funeral insurance and life insurance are both relevant when it comes to alleviating the financial burden for your loved ones, they have very different scopes of cover. If you’re planning to take out life or funeral insurance, this guide gives you useful insights on the key differences.
Purpose and focus of cover
Funeral Insurance is much narrower in focus than Life Insurance. The central purpose of funeral insurance, as the term suggests, is to help cover the costs of your funeral. Funerals in Australia start at a few thousand dollars and may cost up to $15,000 or more – an expense that can be challenging to come up with if left unplanned.
Funeral insurance can also be used to pay off any small debts you leave behind, such as personal loans, outstanding bills, or credit card debt. In a time of bereavement, funeral insurance can help your loved ones focus on grieving rather than worrying about how they’re going to pay for your funeral.
Life insurance on the other hand is broader in scope, and it may be used in part to cover the costs of a funeral. Depending on the type of life insurance, your policy could be aimed at maintaining quality of life for your family after you pass away, or ensuring you’re still able to meet your financial obligations in the event of a terminal illness. It can help you and/or your loved ones avoid financial hardship if the unexpected happens.
For example, Real Family Life Cover could pay out a lump sum if you pass away or are diagnosed as terminally ill with a life expectancy of less than 12 months. The money can be used for anything from mortgage payments to daily living expenses. If you are diagnosed with a terminal illness, you could get the total benefit amount in advance to help cover care.
Funeral insurance is designed to pay out an amount that will cover the anticipated funeral costs based on your wishes. As a key point of difference, life insurance is aimed at helping you and/or your family support a comparable lifestyle if something unexpected happens, it usually provides a cover amount in a much higher dollar range than a funeral cover policy. For both types of policies, you can generally choose the benefit amount you require within the cover limits, however a life insurance policy will be subject to underwriting and eligibility requirements.
Funeral and life insurance policies can pay benefits to your family members and loved ones if you pass away. With Real Family Life Cover, you can also receive your full benefit paid in advance if you are diagnosed with a Terminal Illness – so you can spend your time making memories with loved ones, instead of worrying about medical bills.
Eligibility for both funeral and life insurance is dependent on the insurance provider. Real Funeral Cover criteria includes:
- Australian residents aged 40–79 are guaranteed acceptance
- No medicals or blood tests required
- Cover for Accidental Death and Accidental Serious Injury only in the first 12 months, then death by any cause thereafter
- Terminal illness cover after 12 months of holding your policy, when diagnosed with a life expectancy of 12 months or less.
This differs to Real Life Insurance, where the eligibility requirements include:
- Australian residents aged 18–64 can apply, subject to underwriting criteria
- No medicals or blood tests required to apply
- You can apply for Optional Total & Permanent Disability cover and Serious Illness cover if you are an Australian resident aged between 18 and 59, working at least 20 hours per week, subject to underwriting criteria.
Funeral insurance and life insurance premiums are generally not deductible.
Some funeral insurance policies provide you with the option to receive a cash payout at a certain stage, for example when you reach the age of 85. You can cancel the policy and obtain an early cash payout, which you and your loved ones can use for funeral planning or any other purpose. Life insurance policies typically don’t provide this option, and any payout is usually conditional upon your death or terminal illness or other claim being made.
At Real Insurance, we’re focused on protecting the quality of people’s lives. Our Funeral Insurance and Life Insurance products are designed to give you and your family peace of mind that you have cover should the worst happen. Contact our friendly team today about what we can do for you, or explore our website to find out more.
This article is an opinion only, provided for general information purposes and shouldn’t be considered or relied upon as professional or personal advice. If you have legal, tax, or financial questions, you should contact an appropriate professional.
Real Funeral and Life Insurance is promoted and distributed by Greenstone Financial Services Pty Ltd (GFS) ABN 53 128 692 884, AFSL 343079, trading as Real Insurance and underwritten by Hannover Life Re of Australasia Ltd ABN 37 062 395 484. Any advice provided is general only and does not consider your objectives, financial situation or needs. You should carefully read the relevant Product Disclosure Statement (PDS) to ensure the product is right for you. A copy of each PDS is available on this website or by contacting us. Terms and conditions apply.
15 Feb 2018