Funeral bonds: An alternative to funeral insurance

There are many alternatives to taking out a funeral insurance policy to pay for your last big expense in this world. One such alternative is a funeral bond.

These bonds are available from friendly societies, life insurance companies and some funeral directors. A funeral bond is like a managed fund except that it can only be paid out upon the death of the owner. You cannot access the money earlier. The upside is that like other managed investments, it earns interest until you need it.

How funeral bonds affect the age pension

As investments, funeral bonds are assessed under the Centrelink assets test, which means your share of the value (plus any interest earned) may be included in your assessable assets and therefore deemed to be earning income under the deeming rules for the purpose of calculating any age pension amount you may receive.

To be exempt from the assets test:

• the bond must not exceed the Funeral Bond Allowable Limit (FBAL), which is currently $15,750, indexed annually on 1 July, and

• there are no prepaid funeral expense arrangements in place.

You must tell Centrelink about any funeral bonds you own, even if you know they are exempt from the assets test.

Funeral bond advantages

Some advantages of a funeral bond include:

• The proceeds are paid out tax-free.

• Your family can choose any funeral director.

• You can invest in up to two bonds which still qualify for exemption from the Centrelink assets test provided that in total they fall below the FBAL.

• Some bonds have extra benefits such as providing for transporting your body home if you die overseas or interstate.

Funeral bond conditions

It’s wise to check the conditions of each funeral bond. For instance, some bonds will pay the full balance on death and others will only pay the actual amount required for the funeral. However, in most cases any amount remaining after covering funeral expenses will be returned to the deceased’s estate.

It’s wise to get advice first

As with any financial product, consider all your financial circumstances and always seek professional guidance before you commit yourself.