May You Invest In Peace

Sun Herald

Sunday October 28, 2007

Bina Brown

Prearranging your own funeral is a smart move, reports Bina Brown.

NOBODY likes thinking about their death. Yet if you care about the type of the coffin you are buried in or even the size of the death notice in the paper, prearranging and funding your own funeral could have its benefits.

Like weddings, funerals carry many hidden costs. Even the quality of the paper used for the order of service can add considerably and may not be the top priority on the minds of grieving relatives.

But some shysters get rich off selling these policies to unsuspecting people, particularly in remote communities, so you need to make sure you understand the fine print of any plan and are actually getting what you pay for.

FUNERAL COSTS

Funerals don't come cheap. Even a basic funeral is likely to cost closer to $10,000 than $5000, depending on where and how a person is laid to rest.

In many cases the cemetery fee is the biggest cost - if it is a burial - with allotments running into the thousands.

The cost of a coffin starts at about $770 and runs up to a possible $35,000, with most people paying about $4500.

Other costs to consider include the order of service, flowers, notices in the paper, burial or crematorium fees, funeral directors' professional service fees, transfer fees, mortuary care, mourning cars, internment, doctors' certificates, the order of service, flowers, notices in the paper, refreshments, monumental work, the memorial book and church fees.

PLAN TYPES

There are two basic ways to ensure your funeral is financially covered; a prepaid funeral and a funeral bond.

With the prepaid version you choose a funeral director and enter into a contract with them as to how the arrangements and service will be conducted and agree on a cost. The money paid is held in trust, usually by a friendly society, and is capital guaranteed. How much you want to spend is up to you.

Bill Cole of William Cole Funerals in Canberra advises anyone prepaying a funeral to make sure a relative or friend knows the plan is available to avoid any unnecessary costs.

With a funeral bond, a maximum $5000 (soon to be $10,000) can be invested. The services are not expressly prescribed to a funeral director but the money is made available when a person dies and the funeral arrangements made at the time of death. The money is invested, usually by a friendly society, and is capital guaranteed. It is a tax-effective investment, with the friendly society paying the tax on the earnings.

These plans are generally sold by financial planners and funeral directors.

INSURANCE

Funeral insurance is like other insurance types where an agreed amount of funeral cover can be met through the payment of regular premiums. The premiums must be maintained to make a claim.

Consumer group Choice recently questioned the value of some funeral insurance plans. The example used was one major bank offering a 52-year-old woman $7380 funeral cover, costing $20 a month.

Assuming she lives to around her average life expectancy (about 84 years) she could be paying premiums for another 32 years (or 384 months) - that's $7680 and more than the cover she is receiving.

Under this plan the final payout and premiums were also not indexed for inflation so the value of $7380 after 32 years may not even be enough to cover funeral expenses.

A savings plan of $20 a month over 32 years with interest compounding at about 6 per cent will amount to over $23,000 - a much better return on your money.

Insurance products are generally sold through brokers.

HOW BONDS WORK

Funeral bonds are tax effective, that is, no tax is payable by the bond holder.

The aim is for the money to be invested in a range of conservative investments and a return generated that is greater than the rate of inflation and hopefully covers any associated management fees.

The bond pays annual bonuses - the tax on which is paid for by the friendly society. At no stage is a person's personal tax position affected.

When the bond owner dies the benefit is paid to their estate. The growth component of the benefit - that is, the difference between the benefit and the contributions - is then assessed in the hands of the estate.

Most bonds carry a management fee of about 2 per cent a year. There may or may not be an entry (0 to 5 per cent) or exit fee. In times of low returns, management fees may considerably reduce the size of the bonus paid.

Funeral bonds are only redeemable at the time of death so it is not possible to access the money once it has been paid - outside of any cooling off period, that is.

If the bond is being paid for in regular contributions it should be possible to stop the payments at any time. The amount owing at the time of death will be the amount contributed.

CHECKING OUT

? A bond is redeemable at funeral homes globally and is payable upon presentation of a death certificate or statutory declaration.

? If a funeral has been preplanned with a specific funeral director and a person dies in another state or country then the money held in trust is generally payable to the estate.

? Anyone is able to prepay a funeral or obtain a funeral bond regardless of their age or condition of health.

? Ensure the executor of your will is familiar with the details of your prepaid funeral bond.

Leave your loved ones with less to worry about

FAY ARRIOLA, 76, remembers her grandmother saying "as long as I have enough money left to bury me".

With that thought in the back of her mind, she went with her mother to buy a funeral bond. When her mother died at the age of 93 she found the whole process of getting the money and paying for the funeral to be worry-free.

Last month, Fay and her husband Ray, 79, approached Lifeplan Funds Management to see what might be available for them.

"I just decided that Ray and I are getting up in age and you never know what is going to happen," says Arriola. "We bought a joint funeral bond for $5000. Whoever goes first uses it. It will come out of the estate for whoever is left but for the first one it just means less responsibility and no worries."

© 2007 Sun Herald

Back to News Index | Back to Home