Author Katrina Shanks, CEO Financial Advice NZ Article originally published in Stuff.co.nz.
Katrina Shanks is the chief executive of Financial Advice New Zealand. She was a previous chief executive of the Funeral Directors Association of New Zealand.
It’s not hard to see how much the cost of living is rocketing right now and the pressure this is putting on households.
For many, it is hard to budget for the increased cost of living and, when unexpected or one-off expenditure occurs, to fund these extra costs.
One of the unexpected costs that occur is when someone we love dies.
A recent survey of a sample of 17 councils shows the average cost of burial is now $4038 – an increase of 9% in just two years.
That takes the average cost of a very modest funeral with a burial to around $8400. A modest funeral includes the services of a funeral director and the use of their premises.
Some of the increases for burials since 2020 have been huge. An example is a 48% increase in Tauranga (to $4673).
Costs vary depending on where you live and die. If you live in New Plymouth, the cost of being buried is $6552, and in Auckland’s Manukau and Waikumete it’s $5600. At the other end of the scale, it’s $1150 in Taupo and $2075 in the Far North.
Again, that’s all before the funeral director’s costs.
This takes the average cost of a funeral to about $10,000 but that varies too, depending on how you and your family want to say goodbye.
There are a lot of choices you can make that will determine the cost of the funeral, such as:
- If being buried, the cost of a burial plot, a casket, a headstone and transportation
- If being cremated, the cost of cremation, a casket, transportation and an urn (this costs less than a burial)
- Funeral director costs
- Venue for a funeral service
- Service sheets
- Food and drinks to be provided for attendees after the funeral
- Newspaper notices and death certificates
No wonder funeral directors recently called for the Government to raise the Work and Income funeral grant. This is something families can apply for if the deceased person’s estate doesn’t cover costs and neither can the family. It will pay for the funeral director to prepare the body for burial or cremation, the cost of a casket, and the cost of buying a burial plot or cremation fees.
But it’s set at $2280.70, where it has been for many years. The only good news is you don’t have to pay it back!
Other help can come from ACC when someone dies from an injury covered by ACC. They can pay a grant of up to $7024.80 to help with funeral or memorial costs, one-off payments, and loss of income.
So how can you prepare to meet these costs to save your family having to worry about them when you pass away?
There are several options.
Many people take out funeral insurance, which pays for all the costs immediately upon death.
But you need to check these out carefully: read the fine print or get advice from someone who knows what they’re talking about because they can be expensive and not great value for money.
Level premium life insurance is another option, where the cost of cover remains the same to a specified age.
Most insurance requires you to pay the premiums until you die, to be able to claim.
I know of instances where people have paid into them for many years only to stop because they can’t afford them after they retire and have not received any benefit from the payments (apart from the peace of mind and financial protection that has been in place for the time that the cover was in place).
The most basic option is to save.
You could open a special bank account into which you put a few dollars a week until you have saved the money required to cover your funeral. That’s a painless way to do it, and if you start early enough, even just $10 a week will turn into thousands in a few short years. Then try not to touch it.
Another option is taking out a pre-paid funeral plan.
The Funeral Directors Association offers such a plan through a Funeral Trust. The beauty of this option is you get back every cent of what you put in.
Your money is held and invested by a trust and paid out after the funeral service has been delivered.
It must be accompanied by a prearrangement plan, which allows you to plan your funeral in detail, so your family doesn’t have to worry about small details at a stressful time.
If you might need long-term residential care in the future, and you need to apply for the means-tested residential care subsidy, up to $10,000 of funeral pre-payment funds is exempt from the asset assessment.
With these two options, you have kept your own money working for you right up till the time you pass away.
In our family, we have not ring-fenced money for our funerals yet, but we have discussed what our preferences would be if we did pass away. This is an important part of planning for the future.
As my financial adviser would say – it maybe one of the harder conversations to have amongst family members, but one of the enduring messages from people who have faced large bills from their parents or family members dying unexpectedly, is that they don’t want to place their family in that same situation. Leaving families under financial duress to say goodbye isn’t how you want to be remembered.