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Prepaid Funeral Plan Versus Contributory Funeral Benefit Fund

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Last amended: 8 March 2013

Funeral benefits made under certain sections of the VEA

    

In calculating the amount of funeral benefit payable, one must take into account any benefit paid by a contributory funeral benefit fund which was held by the person. This means if the cost of the funeral has:

  • been covered by the contributory funeral benefit fund, no funeral benefit is payable, or
  • not been fully covered by the contributory funeral benefit fund, then the funeral benefit payable is the lower amount of either: the out of pocket expenses; or the maximum funeral benefit payable.

Note: If the person had a prepaid funeral, then this is disregarded for the purpose of calculating the amount of funeral benefit payable, i.e. the maximum amount of funeral benefit is paid.

Differences between prepaid funeral plan and contributory funeral benefit fund

The following table illustrates the difference between a prepaid funeral plan and contributory funeral benefit fund.

Prepaid funeral

Contributory funeral benefit fund

There is a contract between the person and the funeral director.

There is no contract with a funeral director.

The cost of the funeral is set at the time of the contract and cannot vary for the items specified in the contract. The cost of the funeral is predetermined.

Note: The contract is not valid unless the full amount has been prepaid. If payment is made by instalments and the person dies prior to making full payment, the contract is void.

The cost of the funeral depends on the arrangements made by the next of kin or executors of the estate at the time.

The choice of the funeral director and all funeral arrangements are made before the death of the person.

The funeral director is not chosen. All funeral arrangements, including choice of the funeral director are made after the death of the person.

The prepaid money is held in trust, generally with a friendly society or insurance company as a funeral bond, or similar. The investment is made either:

  • in the funeral director's name in trust for the person specified, or
  • in the person's name with the funeral director nominated as the beneficiary.

The fund is regarded as an insurance policy which is paid on the death of the insured. The amount paid is not guaranteed to cover the cost of the funeral.

On the death of the person, the total amount of money including accumulated interest, is paid to the funeral director as payment for the funeral.

Note: If the costs of the funeral exceed the amount paid, the funeral director will bear the additional expense. If the cost of the funeral is less than the amount paid, the balance is retained by the funeral director.

On the death of the insured, the money is paid to the person's estate. There is no obligation for the money to be directed to the cost of the funeral. For example, if the amount paid by the funeral benefit fund exceeds the cost of the funeral, the balance remains with the person's estate.

The prepaid money does not form part of the person's estate in any way.

The benefit paid on the death of the insured is added to the value of the estate.

Funeral Bonds

Funeral bonds, also known as funeral investments, are managed investments which earn interest, with the capital and interest only being realised on death.  At this time the investment is paid to the estate, or alternatively may be assigned to a funeral director by prior contract to cover funeral expenses, without additional expenses needing to be paid.

Funeral bond investments may be initiated by lump sum payments or instalments, rather than by small regular payments which typically arise with contributory funds.

Where a delegate is satisfied that a deceased veteran's funeral bond investment shares the features of a prepaid funeral in the above table, and is closer in nature to a pre-paid, contracted agreement with a funeral director rather than a contributory fund, it can be similarly disregarded when calculating the amount of funeral benefit payable.