Don’t dig yourself into a hole with Funeral Insurance

We may have mixed feelings about the business of burials but as one American writer put it “I never saw a dollar bill cry at anyone's funeral.” 

If you are planning a cremation or full-on interment, your own or another’s, it will come at a significant cost with many options ranging from plots to caskets and wakes.

The costs for the cemetery plot alone, excluding the fees for funeral directors, coffins, flowers etc, can be north of $15,000.

And the choices don’t end there - the way you might pay for  everything means more decisions too - pre-paid, funeral insurance, self-insured or even  bonds.

Consumer group CHOICE has this week looked again at the most highly advertised and hyped product called funeral insurance and found it wanting.

Likewise the Australian Securities and Investments Commission, ASIC, have looked critically at it and found premiums rise steeply for the over-50s with many cancelling their policies in the first few years.

Many of the policies increase year-on-year, with what are called stepped premiums, meaning 80 to 84-year-olds pay four times as much as 50 to 54-year-olds, according to ASIC.

Hence many people can end up paying more in premiums, maybe four times as much as the actual funeral would cost.

Elements of the funeral insurance industry have not covered themselves with glory. There are endless daytime TV ads aimed at stirring the fears of leaving your family with a large funeral bill.

There are also too many cold calls on the phone. Two years ago, I took such a pitch and for research told them I was a 25-year-old and ‘somewhat interested’ in funeral insurance.

Their enthusiasm for such a young person, who is very unlikely to need a funeral for at least 50 years, paying a monthly premium meant endless attempts to try and sign me up.

Vulnerable consumers are more at risk especially indigenous people who fall prey to miss-selling and predatory behaviour. ASIC found 50% of policies were held by Indigenous consumers aged under 20.

A particularly controversial mob called the Aboriginal Community Benefit Fund (ACBF) has confirmed it covers indigenous children from birth!

So what to do? Fortunately there are a range of options either for the consumer to take full control or enjoy some protections.

Funeral insurance has its place but you need to weigh up the pros and cons in your own time and preferably with family members. Options include:

• There are what are called “guaranteed” funeral insurance products which keep a lid on premiums and are said to reduce in cost over time, but check the details.
• There are also pre-paid funerals where you either make regular payments to a funeral director ahead of time or pay in full for a fixed-cost service. There are also cemetery costs to consider.
• You can pay into funeral bonds where the money is invested and can only be used for your funeral.
• Life insurance policies, either inside or outside of your superannuation, can also cover funeral costs as can your super account itself.

Of course many people ignore the whole subject of their inevitable demise and leave family to pick up not only the bill but also the planning.

It’s a good idea to do yourself and everyone a favour by thinking coolly about how you wish to be sent off well ahead of time. You also get to pick your favourite song, be it Candle In the Wind or Danny Boy.

Check out the CHOICE report and  the ASIC Moneysmart website.

PS - I am on the board of Cemeteries and Crematoria NSW (CCNSW)  the statutory body with strategic and regulatory oversight of the interment industry in the state.

FiftyUp Club Pty Ltd ACN 166 905 175 (FiftyUp Club) is a Corporate Authorised Representative (AR Number 465649) of One Big Switch Pty Ltd ACN 150 963 474 (AFSL number 455982). Any advice provided is general adviceonly and does not take into consideration your objectives, financial situation or needs.