Do You Get Money Back If a Prepaid Funeral Costs Less in Australia?

Detailed Explanation

This page covers the Australian rules. For how the question works in general, and in other countries, see do you get money back if a prepaid funeral costs less.

In Australia, money paid ahead for a funeral usually sits in one of two places: a prepaid funeral contract with a particular funeral director, or a funeral bond with a friendly society or life insurer. Moneysmart describes them differently. A prepaid plan lets someone choose and pay for their funeral in advance with a funeral director at today's prices. A funeral bond is a deposit plus regular payments that can earn interest, and the funeral director can be chosen later by the family. That difference is what decides whether anything comes back. For a fuller comparison, see how do prepaid funerals work.

Prepaid funeral contracts: the price is fixed both ways

A prepaid contract is an agreement for a defined funeral at an agreed price. Because the price is locked in, the funeral director carries the risk that costs rise, and in return there's generally no refund if the funeral they deliver costs them less than the money has grown to. The payment bought the funeral; it isn't a cash balance held for the family.

State law governs how the money is held until it's needed:

• NSW: Under the Funeral Funds Act 1979, pre-paid and contributory funeral funds must be registered with NSW Fair Trading, and the business must transfer money to a registered fund within 10 days. The fund has to invest the money securely and be separate from the funeral director's company. Before a contract is signed, the business must set out each component and its cost, and the services not covered.
• Victoria: Under the Funerals Act 2006, money paid under a pre-paid contract (apart from the administration fee and GST) must be invested in a friendly society funeral benefit fund or certain life insurance products, within three business days for cash and seven business days for other payments.
• Other states and territories: Moneysmart notes that Queensland, South Australia and Tasmania also require prepaid money to go into registered or regulated funds, while the ACT, the Northern Territory and Western Australia offer fewer protections.

These rules protect the money. None of them, as far as the published guidance goes, creates a general right to a refund when the funeral turns out cheaper. That's left to the contract. See is your prepaid funeral plan protected for the state-by-state detail.

Funeral bonds: a balance usually goes to the estate

A funeral bond works differently because it is a sum of money, not a service. When the person dies, the friendly society releases the bond on a claim from the executor or next of kin. It typically pays either the funeral director directly against the invoice or the estate's bank account. If the funeral costs less than the bond's value, the balance is generally paid to the estate and distributed under the will or the intestacy rules. If the funeral costs more, the estate pays the difference.

The exact process sits in the bond's product terms, so the friendly society named on the bond certificate is the body to ask. Funeral bonds and prepaid funerals also have their own treatment under the Age Pension and other income support means tests. Services Australia sets the conditions, including a limit on exempt funeral bonds that's indexed each year, so check the current figure there rather than relying on an old number.

Where a prepaid contract is funded by a bond

Some funeral directors invest a customer's prepaid contract money in a friendly society fund or bond. In that case the contract still governs what the family gets: the funeral director generally receives the funds once the agreed funeral is delivered. It's worth reading the paperwork closely to work out whether the arrangement is a contract (fixed funeral, no surplus) or a bond held in the person's own name (sum of money, surplus to the estate).

Things to Consider

• Check which product it is before the funeral. The paperwork usually makes it clear: a contract names the funeral director and the funeral; a bond certificate names the friendly society and a dollar value.
• Ask about changes in writing. If the family wants a simpler funeral than the one in the contract, ask the funeral director whether any item left out will be credited, and get the answer in writing.
• The executor handles the claim. Any balance belongs to the estate. See what does an executor do in Australia for how this fits into the wider job.
• Outstanding extras may use up the balance. Costs outside the contract, such as cemetery fees, a celebrant or catering, are usually billed separately, and a bond balance may go towards them first. See how do you use a prepaid funeral plan after someone dies.
• Cancelling is a different question. If the funeral won't be used at all, the rules on cancelling a prepaid funeral plan apply instead.

Common Mistakes

• Treating a prepaid contract like a savings account. The investment growth on a fixed-price contract normally belongs to the funeral director as part of the deal, not to the family.
• Assuming a bond balance goes to whoever paid for the funeral. It goes to the estate, and the executor distributes it with everything else.
• Relying on another state's rules. NSW and Victoria have detailed laws; the ACT, the NT and WA have fewer protections. Check the state where the contract was signed.
• Not asking the friendly society directly. The bond's terms, not a general assumption, decide how the payout and any balance are handled.