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 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.
As investments, funeral bonds are assessed under the Centrelink assets test, which means your share of the value (plus interest) is included in your assessable assets and is deemed to be earning income under the deeming rules.
To be exempt from the assets test:
• the bond must not exceed the Funeral Bond Allowable Limit (FBAL), which is currently $11,750 indexed annually on 1 July, and
• there are no prepaid funeral expense arrangements in place.
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 two bonds which still qualify for exemption from the Centrelink assets test provided they fall below the FBAL.
• Some bonds have extra benefits such as providing for transporting your body home if you die overseas or interstate.
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, which means that any excess is retained.
As with any financial product, consider all your financial circumstances and always seek professional guidance before you commit yourself.
Our team of advisors are at hand to help with any questions or queries you may have about funeral insurance and funeral bonds.
Call (02) 4926 2300 or email us.
Sources:
Centrelink www.humanservices.gov.au Funeral bonds and prepaid funerals
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