How do funeral bonds work?

Funerals in Australia typically cost anywhere from $8,000 to around $20,000, depending on the type of service you choose. Financially planning ahead with funeral bonds or a prepaid funeral plan ensures you are prepared for the inevitable.

Even if the death was expected, the cost of the funeral often takes families by surprise. The unfortunate reality is that not everyone either has savings or enough funds in their estate to cover funeral costs when they die, placing a third of Australian seniors under financial hardship, according to the Australian Seniors Cost of Death report.

The good news is that there are a few ways you can plan today for your funeral – whether it's not needed for months, years, or decades.

Setting aside funds to pay for your funeral offers peace of mind, knowing you are reducing the financial burden on your loved ones when it comes time for them to plan your funeral. Understanding the options available will also help you to make well-informed decisions about how you want to be farewelled.

In this article, we explain the advantages of preparing for your funeral while you're still here. We highlight the difference between funeral bonds, funeral insurance and prepaid funeral plans.

What is a funeral bond?

Funeral bonds are capital-guaranteed investment products designed to help you save towards the cost of a funeral. The money invested is held in an independently managed funeral fund and can only be released after the accountholder has died.

In simple terms, a funeral bond works like a dedicated savings account that's set aside specifically for funeral expenses. You can contribute through a lump sum, regular payments, or a combination of both, depending on the provider.

How a funeral bond actually works

When the accountholder passes away, the executor, next of kin or another authorised person provides the required documentation to the funeral bond provider, usually including a death certificate. The bond is then released and the proceeds can be used to pay funeral expenses.

If the bond has been assigned to a funeral director, the funds are paid directly to them to cover the agreed funeral costs. If it hasn't been assigned, the money is generally paid to the estate or nominated recipient, who can then use it to settle the funeral account. Any money remaining after funeral expenses have been paid forms part of the deceased person's estate and is distributed according to their will or the relevant succession laws.

Most funeral bonds are capital-guaranteed, meaning the value of the bond won't fall below the amount contributed. Instead, balances generally grow through bonus additions, similar to interest, rather than fluctuating with investment markets. Some providers also offer investment-linked options, which may deliver higher returns but also carry greater risk.

The terms of each funeral bond will depend on the specific product. Each funeral bond will have a product disclosure statement that explains how it works.

Pros and cons of funeral bonds

Advantages of funeral bonds

The companies that manage funeral bonds are regulated by Australian laws. They are a secure option for people who want to save for their funeral but don't want to think about planning the actual service – which people can find confronting.

Funeral bonds encourage saving because funds cannot be accessed for any reason other than to pay for the accountholder's funeral.

A funeral bond is an investment, and the funds are intended to grow over time. One small tax perk worth knowing is funeral bonds are classified as a "tax paid" investment, meaning the tax on earnings is generally handled within the fund rather than something you need to report and pay yourself each year on a personal tax return.

Funeral bonds also come with a separate benefit if you're on the Age Pension. Centrelink normally counts your savings and investments as assets when working out how much pension you're entitled to. But money held in an eligible funeral bond, up to a set limit, is excluded from that calculation altogether, it simply doesn't count against you.

As of 1 July 2026, the Centrelink funeral bond allowable limit is $16,250. The Department of Social Services reviews and indexes this limit annually, so it's worth checking the current figure each year if you're relying on the exemption for pension purposes.

Another advantage of funeral bonds is the freedom to nominate your preferred funeral director, if you wish. You also have the flexibility to change your preferred funeral director at any time, or to leave the bond unassigned and let your family choose when the time comes.

Disadvantages of funeral bonds

While they are a great option to save money towards funeral expenses, funeral bonds are not guaranteed to cover the total cost of your funeral when the time comes.

Funeral bonds should earn bonus additions over the life of the investment, which are added to the capital. However, the amount is not guaranteed to keep up with inflation. Your specific funeral fund may not grow quickly enough to match rising funeral costs over the years. Before considering investing in a funeral bond, be sure to consider that possibility.

On the other hand, a prepaid funeral plan is a safeguard against rising funeral costs over the years. Prepaid funerals guarantee the farewell you have pre-planned, as you are paying for the actual funeral service upfront, at today's price.

So how does a prepaid funeral connect back to funeral bonds? It can get confusing because the funds paid into a prepaid funeral product are usually held securely in a funeral bond, in the customer's name. According to Moneysmart, in several states, the law requires a funeral director to place your prepaid money into an independently managed, registered fund rather than keep it in their own business account, specifically to protect your money if the funeral business ever closes down or changes hands. A funeral bond is one of the common ways providers do this. For example, with a Bare Prepaid Cremation, the customer's funds are held in a funeral bond with Lifeplan Australia Friendly Society until they are needed to pay for their funeral.

With a Bare Prepaid Cremation, you can either prepay upfront or by monthly installments. There's no upper age limit or health check required either, it's available to any adult, regardless of age or health. Once your arrangement has been paid in full, there is nothing more to pay regardless of whether the funeral is needed in six months or 60 years.

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Funeral bonds vs funeral insurance.

Older Australians looking to plan ahead may also be weighing up the option of investing money into funeral bonds vs funeral insurance.

The difference between funeral bonds and funeral insurance is that with a funeral bond, your money is held securely in your name until it is needed for your funeral. On the other hand, funeral insurance requires the policyholder to keep making payments, usually for the rest of their life.

Funeral insurance premiums usually increase as you get older, making it unaffordable for many pensioners. If you stop paying at any stage, the policy is cancelled and none of that money comes back to you or your estate – it works more like car insurance than a savings account.

Here's the simplest way to think about it: the younger you are when you take out funeral insurance, the more years you'll likely spend paying premiums before you pass away, and the more those premiums can end up costing you compared to what your family actually receives. If you're weighing up funeral insurance, it's worth asking the insurer a few plain questions first such as how much you'll pay in premiums over time, whether the premiums stay level or rise as you age, and what happens to your cover once you're on the Age Pension.

Funeral bonds aren't as financially effective as a prepaid funeral, which pays for the actual service at today's price, regardless of inflation over the years. However, funeral bonds can be a good option for Australians looking to save for their funeral without needing to choose a funeral director or pre-plan their funeral service. Just set funds aside and leave the planning up to your loved ones when the time comes.

Final thoughts on funeral bonds and prepaid funerals

Funeral bonds and prepaid funerals are secure options to plan ahead for your funeral and reduce some of the future financial stress on your family, who will be planning your funeral. As the funds are held in your name until the time it is needed for your funeral, either of these options are generally safer than funeral insurance.

The benefit of a prepaid funeral, rather than a funeral bond, is that you are locking in today's price and you have a say in how you will be farewelled when the time comes. If your funeral is not needed for many years to come, a prepaid funeral ensures the service is completely paid for, despite any inflation over time.

If you are considering investing in a funeral bond, be sure to read the disclosure statement carefully, including how the bond is owned, who can be nominated, and how earnings are taxed within the fund, as you will not be able to access your money.

We hope this article has given you some clarity about how funeral bonds work, and the difference between funeral bonds, funeral insurance and prepaid funerals. Hopefully the information helps you to make an informed choice about planning ahead to cover your funeral costs.

If you’d like to know more about planning ahead, or if you have any questions about Bare Prepaid Cremation, please give us a call on 1800 202 901 or visit our Prepaid Cremation Quote page to get a quote online.

Disclaimer: This article and all information and pricing within it was accurate at the time of writing. Please see bare.com.au or linked sources for current pricing. This article provides general information only and does not constitute professional advice. Please consult a qualified expert for guidance specific to your situation.