Funeral bonds and prepaid funeral plans

This page explains funeral bonds and prepaid funeral plans and how they affect your pension.

The rates on this page are effective from 1 January 2025.

What is a funeral bond?

A funeral bond is an investment offered by a friendly society or life insurance company to allow you to set aside money to cover your funeral costs.

A funeral bond provides benefits only upon the death of the nominated person and cannot be accessed earlier.

What is the current funeral bond threshold?

The funeral bond threshold is currently $15,500.

This threshold is adjusted each July in line with movements in the cost of living.

How are funeral bonds assessed under the assets test?

Up to 2 funeral bonds per person may be exempted when working out your pension, if the sum of the amount invested does not exceed the funeral bond threshold.

If the funeral bond does not meet the requirements to be assets test exempt, then the whole funeral bond is counted as an asset at its current value.

'Amount invested' refers to the total capital invested in the funeral bond and does not include any fees charged or increases in the value of the investment over time.

To be exempted, a funeral bond must meet one of the 3 following conditions:

• it matures on the death of the investor or their partner
• it matures on the death of the member of the couple who dies first
• it matures on the death of the member of the couple who dies last.

Once one of the above conditions has been met, all of the following must apply: 

• it is not able to be redeemed before maturity
• it is used on maturity to pay the expenses of the funeral
• it does not relate to a funeral for which a prepaid funeral plan applies.

If you set money aside for your funeral in any other investment, such as a bank account, it will continue to be counted as an asset and assessed under the deemed income rules.

What happens if a funeral bond is terminated before maturity?

If funeral bonds are held in a company that is wound up, the funds that you receive are not counted as income. However, depending on how you use them, they will be assessed under the income and assets test.

If you transfer the funds to another funeral bond with another company and the value of the new bond is less than the current funeral bond threshold, then it will be exempt from assessment under the income and assets test.

If the funds that you receive from the terminated bond are invested, they will be assessed as a financial asset and the deeming rules will apply.

If the funds are used to purchase an asset, the value of the asset will be assessed under the assets test, unless the purchased asset is an exempt asset. For further information see Asset Test.

Funeral bond assessments for one or more bonds

If you have only one funeral bond and the amount invested does not exceed the funeral bond threshold, then the whole funeral bond may be exempted from the assets test. If the amount invested exceeds the funeral bond threshold, then the whole funeral bond is counted as an asset at its current value.

If you have 2 funeral bonds and the sum of the amounts invested does not exceed the funeral bond threshold, then both funeral bonds may be exempted from the assets test.

If the sum of the amount invested in your 2 bonds exceeds the funeral bond threshold or you have more than 2 bonds, you may prefer that the bond(s) with a higher current value be exempted. DVA will exempt the combination of up to 2 funeral bonds that will give the best pension outcome, providing the sum of the amounts invested does not exceed the funeral bond threshold.

Funeral bond assessments for members of a couple

Each member of a couple may have up to 2 individual funeral bonds exempted if the sum of the amount invested in each member’s bonds does not exceed the funeral bond threshold.

A couple may have up to 2 joint funeral bonds exempted if the amount invested in up to 2 joint funeral bonds does not exceed the funeral bond threshold jointly.

If the couple has a combination of joint and individual funeral bonds, they may have a combination of individual and joint bonds exempted. However, to be exempt, the sum of amounts invested per funeral must not exceed the funeral bond threshold.

The total amount invested in a joint funeral bond counts towards the funeral bond threshold of each member of the couple and is not halved.

Example 1: Mr and Mrs Smith have invested $5,000 in a joint funeral bond. Mr Smith also invested $4,000 in an individual funeral bond and Mrs Smith invested $3,000 in an individual funeral bond.

Their funeral bond assessment is:

• Mr Smith has invested $5,000 + $4,000 = $9,000 towards their funeral.
• Mrs Smith has invested $5,000 + $3,000 = $8,000 towards their funeral.

Each member of the couple is considered to have 2 bonds, that is the joint bond plus their individual bond. The sum of the amounts invested in these bonds for each member of the couple does not exceed the funeral bond threshold. Therefore, the funeral bonds are assets test exempt.

Example 2: Mr and Mrs Jones have invested $7,000 in a joint funeral bond which is now valued at $9,000. Mrs Jones has also invested $9,500 in an individual funeral bond which is now valued at $8,000.

The funeral bond assessment is:

• Mr Jones has $7,000 towards their funeral
• Mrs Jones has $7,000 + $9,500 = $16,500 towards their funeral.

Mr Jones is considered to have one bond, the joint bond which is under the funeral bond threshold and would therefore be assets test exempt.

Mrs Jones is considered to have 2 bonds, the joint bond plus an individual bond. The combined value of the amount invested in these 2 bonds is $16,500 which is above the current funeral bond exemption threshold of $15,500. This means that the current value of the bonds, when considered in combination, will be assessable. However, as the individual values of each of Mrs Jones funeral bonds are under the funeral bond threshold, they can have either one of the funeral bonds exempted from assessment under the assets test.

In this example the best pension outcome is achieved by DVA exempting the bond with the highest current asset value. The current asset value of Mrs Jones individual bond is $8,000 while the current asset value of the joint bond is $9,000. Exempting the joint funeral bond will therefore result in the most favourable pension outcome.

How are funeral bonds assessed under the income test?

If your funeral bond is assets test exempt, then it will also be exempted from the income test. This means that an exempt funeral bond is also exempt from the deemed income rules.

If your funeral bond is not assets test exempt, then the current value of your funeral bond is assessed as a financial asset and the deemed income rules apply.

For more information refer to Deeming and Financial Assets.

What is a prepaid funeral plan?

A prepaid funeral plan is where a person makes an advance payment for funeral services for themselves or their partner. With a prepaid funeral plan, all of the funeral arrangements are made with a funeral director in advance at 'today's prices' and:

• there is a contract specifying the pre-arranged funeral services which will be provided
• nothing further needs to be done for the funeral services to be provided in accordance with the contract
• the prepayment cannot be refunded, unless the person moves outside the designated funeral service area.

A prepaid funeral plan may involve you assigning a funeral bond to the funeral director as payment. This assignment transfers the ownership of the funeral bond to the funeral director and you are the owner of the prepaid funeral plan, not the assigned funeral bond.

How are prepaid funeral plans assessed under the income and assets tests?

A prepaid funeral plan is not counted under the income and assets tests, regardless of the prepaid amount. Unlike a funeral bond, the current threshold limit does not apply to prepaid funeral plans.

If you have a prepaid funeral plan and have a funeral bond as well, the funeral bond will be counted as an asset and assessed under the deemed income rules.

If you buy a cemetery plot for yourself without prepaying your funeral services, the value of the cemetery plot, regardless of its value, is not counted under the income and assets tests.

What information does DVA need about my funeral bonds and prepaid funeral plans?

The information you will need to provide depends on the type of funeral arrangements you make.

If you make a funeral bond investment with a friendly society or life insurance company, you will need to tell us the following information:

• the name of the funeral bond and the friendly society or life insurance company with which it is invested
• how much money you invested in the funeral bond (excluding fees)
• whether the funeral bond is for a single funeral or a joint funeral, specifying the person(s) to whom the bond relates
• whether or not you also have other funeral bonds or a prepaid funeral to which the funeral bond relates.

If you purchase a prepaid funeral plan you will need to tell us the following information:

• the name of the funeral director with whom you arranged your prepaid funeral
• how much money you paid for your prepaid funeral plan
• whether the prepaid funeral plan is for a single funeral or a joint funeral, specifying the person(s) to whom the prepaid funeral plan relates
• whether or not you have also made funeral bond investments with a friendly society or life insurance company for the same funeral to which the prepaid funeral plan relates.

We need this information to ensure that we record your funeral bond and prepaid funeral plan details correctly. We may ask you to provide documentation to verify your funeral bond and prepaid funeral arrangements (e.g. copies of your funeral bond investment certificate and/or contract with your funeral director).

Obligations

When you are granted an income support pension and periodically after that, you will be notified of your obligations. You will be required to tell us within 14 days (28 days if you live overseas or receive remote area allowance) of changes to your circumstances that might affect the rate of income support pension you receive or your eligibility to receive that pension. These obligations apply equally to trustees.

In relation to funeral bonds, the sort of things you would need to tell us about within 14 days (28 days if you live overseas or receive remote area allowance) are as follows:

• you make a new funeral bond investment
• you contribute additional money to an existing funeral bond investment
• you purchase a prepaid funeral plan
• you are refunded money from a prepaid funeral plan.

Usually an overpayment of pension will not occur when you have met your obligations. However, sometimes even if you have met your obligations, an overpayment can occur because we are unable to process the change before the next payday. We do our best to avoid this occurring, but it is not always possible. To provide you with your exact entitlement we are obliged to recover overpayments of pension where they do occur.

Further information about funeral bonds and funeral plans

Further information can be obtained from the Australian Funeral Directors Association (AFDA). AFDA’s website is at http://www.afda.org.au