Funeral Bonds, Prepaid Funerals & Burial Plots: How Centrelink Treats Each One

Three different funeral-prearrangement products, three different sets of Centrelink rules. The differences matter — choosing the right one can boost your Age Pension by hundreds or thousands of dollars a year, while choosing the wrong combination can quietly void an exemption you thought you had. This guide explains how each product is treated, the trap most people don't see coming, and which approach makes most sense for you.

The three products at a glance

"Funeral bond" and "prepaid funeral" get used interchangeably in everyday conversation, but they're completely different products under Centrelink rules. Here's the quick orientation:

The Centrelink treatment, side by side

That table tells most of the story. Now let's walk through each in more detail — especially the funeral-bond-vs-prepaid trap that catches a lot of people out.

Funeral bonds: the basics

A funeral bond is an investment specifically designed to fund your future funeral. You pay in once (or over time), the bond grows tax-paid until your death, and then the accumulated value is paid out to your estate or directly to your funeral director.

The current threshold (the IFBAL)

A note on "per person": the threshold applies to each individual investor where bonds are held separately. A single joint bond held in both names is capped at the same threshold, not doubled — see the couples section below.

The threshold is the amount you can invest — not the bond's current balance. This is an important distinction:

• If you invested an amount just under the threshold a couple of years ago and accumulated earnings have grown the balance to just above the threshold, your bond remains fully exempt. The amount you contributed stayed within the threshold; growth above the threshold doesn't void anything.
• If you exceeded the threshold in a single contribution (for example, by misreading the current limit and investing too much), the entire balance (including any earnings) is assessable as a financial asset and is subject to deeming under the income test.

Two bonds maximum, per person

You can hold up to two funeral bonds — but the combined investment across both must stay under the threshold. So if you hold a $10,000 bond and add a second $8,000 bond, you've exceeded the $16,250 limit and lost the exemption on both.

Couples: separate bonds beat a joint one

This is one of the more underused opportunities in the funeral-bond space:

• Each member of a couple can hold their own funeral bond up to the full threshold. Two separate bonds at $16,250 each = approximately $31,500 in exempt assets.
• A single joint bond held in both names is treated as one bond and capped at the same single threshold — $16,250 total, not doubled.

If you're a couple and already hold a joint bond, this is worth reviewing — restructuring to two separate bonds adds another full threshold of exempt assets, which at current rates can translate to potentially up to around $1,228 a year in additional pension, depending on your existing assets-test position.

Earnings are also exempt from the income test

While the bond is exempt under the assets test, the exempt funeral investment is also not subject to deeming under the income test. (Centrelink generally assesses financial assets using deeming rather than your actual earnings, so this is the relevant point.) You don't need to report bond earnings in your tax return either — they're tax-paid at the friendly society or life insurer level. This makes them genuinely "set and forget" for pension purposes.

Prepaid funerals: the basics

A prepaid funeral is a contract with a specific funeral director. You pay in advance — either as a lump sum or by instalments — for the funeral services you've specified. The funeral director guarantees that the funeral as agreed will be provided at the time of your death, regardless of how much costs have risen.

Unlimited exemption

For Centrelink purposes, the amount you've paid for a prepaid funeral is fully exempt from the assets test — there's no upper limit. If you've paid $40,000 for a fully-featured funeral, that $40,000 is exempt. The earnings on those funds (held in trust by the funeral director) are also exempt from the income test.

The conditions are essentially:

• You've entered a written contract with a funeral director
• The funeral services to be provided are specified
• The payment is not refundable (with one exception: if you move outside the funeral director's service area)
• Nothing further needs to be done for the services to be delivered when needed

Burial plots: the simplest exemption

A burial plot is fully exempt from the assets test — this includes a cemetery plot, family mausoleum, crypt, or burial vault. Each member of a couple can have their own exempt plot, and there's no monetary limit.

Unlike funeral bonds and prepaid funerals, the burial plot exemption is largely uncontroversial — you can hold a plot alongside either a funeral bond or a prepaid funeral without any interaction effects. So if you're considering pre-arrangements, the plot is the easiest place to start: it's exempt, it's permanent, and it doesn't complicate anything else.

The big trap: funeral bond + prepaid funeral together

Now we get to the issue that catches the most people out. The funeral bond exemption is conditional on the bond not relating to a funeral for which prepaid expenses have been paid. In other words:

This isn't a quirk — it's built into the social security legislation. The reasoning is straightforward: the funeral bond exemption exists to help people who otherwise can't afford to pre-arrange a funeral with a director. If you've already prepaid a funeral, you don't need the bond exemption for the same purpose.

The one exception: bonds assigned to the funeral director

There is a way to keep things tidy. If your funeral bond is formally assigned to the funeral director as the means of paying for your prepaid funeral, the bond and the prepaid arrangement become part of one combined plan — and the unlimited prepaid funeral exemption applies to the whole thing. Many funeral directors offer this structure precisely because it preserves the Centrelink treatment.

The mechanics: the bond stays with the friendly society or insurer, but legally the proceeds are pre-promised to the funeral director under your prepaid contract. On your death, the bond pays out directly to the funeral director and covers the cost.

If you're considering a prepaid funeral and you already have a funeral bond, ask your funeral director whether they accept bond assignment — many do. This preserves the exemption you've already built up.

The reverse trap: starting a prepaid funeral when you have a bond

The trap generally fires in either direction. If you have a $15,000 funeral bond (exempt) and you sign a $20,000 prepaid funeral contract separately, your situation overnight becomes: prepaid contract exempt (good); funeral bond now assessable as a $15,000+ financial asset (bad). At the standard taper, that's potentially $45 per fortnight ($1,170/yr) less pension on the bond alone — for an outcome that wasn't intended.

The fix is almost always to assign the bond to the funeral director as part of the prepaid plan, or to surrender the bond and roll the proceeds into the prepaid contract. Get advice before signing anything — reversing these decisions can be difficult or impossible.

Which approach makes sense for you?

The right product depends on your circumstances. Some rough guidance:

Consider a funeral bond if…

• You want to set aside a moderate amount (up to $16,250 per person) but haven't decided which funeral director you'd use
• You value flexibility — the bond proceeds can go to whatever funeral arrangement your family chooses
• You'd rather not commit to a specific funeral package right now
• You're part of a couple and want to maximise the combined exempt amount (two separate bonds ≈ $31,500 exempt)

Consider a prepaid funeral if…

• You want to shift a larger amount (over the bond threshold) out of your assets test
• You have clear preferences and want the specific funeral services locked in at today's prices
• You're comfortable with a specific funeral director and the loss of refundability isn't a concern
• You want to give your family certainty about both the arrangements and the cost

Consider a burial plot if…

• You have clear preferences about where you'd like to be interred
• You want a small, simple, permanent pre-arrangement that doesn't complicate anything else
• You want to spare your family from having to choose under stressful conditions

Practical points worth knowing

The threshold is indexed each 1 July

The funeral bond threshold goes up each 1 July with CPI. If you've already invested up to the previous threshold, you can add another contribution each July to "top up" to the new limit without losing your exemption. The current limit is $16,250; check our current rates and thresholds page for any updates.

You can't get your money back from a prepaid funeral

The non-refundability requirement is part of what makes a prepaid funeral exempt. You can't change your mind and get the money back — if you do, it's no longer prepaid for Centrelink purposes (and may also trigger consumer-protection or contract issues with the funeral director). Plan carefully before committing larger amounts.

Buying a bond from a friendly society vs life insurer

Funeral bonds are offered by friendly societies (like Lifeplan, Sureplan, Foresters) and life insurers. The Centrelink treatment is identical regardless of provider — the difference comes in fees, performance, and member services. This is one to compare on the financial product fundamentals, not on Centrelink grounds.

Funeral bond + estate planning

A funeral bond can be nominated to a specific beneficiary or paid to your estate. If it pays to your estate, your executor uses it to pay the funeral and the remainder forms part of the estate. If it's assigned to a funeral director, the funeral director receives the proceeds directly. Talk to your solicitor about how the bond interacts with your will.

What to do next

If you're considering a funeral bond, a prepaid funeral, or a burial plot, three things matter most. First, make sure you don't accidentally combine a funeral bond with a separate prepaid funeral — that's the single biggest error people make in this space. Second, if you're part of a couple, structure things to take advantage of the per-person threshold — two separate bonds beat one joint bond. Third, treat these decisions as final: prepaid funerals aren't refundable, and bond exemptions can be quietly voided by other choices. If significant money is at stake, a single coaching call can prevent a decision that's hard to undo.

Last reviewed: 10 September 2026 · Funeral bond threshold current as of $16,250. For previous indexation periods or other Centrelink rates, see the Centrelink Rates & Thresholds reference page.