FUNERAL INSURANCE
This fact sheet is for information only. It is recommended that you
get legal advice about your situation.
CASE STUDY
In 2006 Grace took out a funeral insurance policy. She told
the telephone salesman that she could afford premiums of
$30.00 per fortnight. She was told that if she took a “stepped
premium” the premiums would increase only by “little
amounts” each year. She initially took out a policy for $7000
cover at premiums of $30.63 per fortnight.
FACT SHEET
By 2013 the premiums had risen to $62.97 per fortnight
(100% increase), but her cover is only $8500 (20% increase).
Grace’s only source of income was the aged pension. Her
situation now is that after paying for her nursing home
accommodation and funeral insurance, Grace has $10 per
week to live on. The premiums are expected to rise again
next year and the policy will soon require more to be paid
in premiums than she has each month after nursing home
care. When that happens Grace will be forced to cancel her
insurance policy and all of her payments will be lost.
CALL THE
INSURANCE
LAW SERVICE
ON
1300 663 464
Financial Rights Legal Centre Inc.
ABN 40 506 635 273
Fact sheets are information
only and should not be relied
upon as legal advice. This
information only applies to
NSW.
FINANCIAL
©2014 FRLC
NSW. RIGHTS
All rights reserved.
WHAT IS FUNERAL INSURANCE?
Funeral Insurance is a type of insurance that you take out to cover
the cost of your funeral after you die. Sometimes it is called a
“Funeral Plan” or “Funeral Expenses Insurance”. Depending on the
type of funeral you would like to have, you can usually choose from
$5,000 to $15,000 to cover the cost of a funeral. After you die this
money will be paid to whichever friend or family member you have
nominated.
Planning for how you are going to pay for your funeral is a good idea,
and will save your family money and stress when the time comes.
However, funeral insurance may not be your best option. Like life
insurance, as you get older the cost of funeral insurance will usually
increase, so you need to think about whether you can afford funeral
insurance over the next 10, 20 or more years.
THINGS TO CONSIDER
●●
Before buying funeral insurance, check whether it is worth
the money.
●●
Will you be paying more for the insurance than the funeral
will actually cost?
www.financialrights.org.au
1
FINANCIAL RIGHTS LEGAL CENTRE | FACT SHEET | FINANCIAL
HARDSHIP
FUNERAL INSURANCE
●●
Will your premiums increase and will you be able to keep paying
them? Ask “what will my premiums be in 5 years?”
◊ Think long-term and remember if you can’t keep up the
payments you are likely to lose all the money you have paid
towards the insurance.
◊ To estimate how long you will live, visit the My Longevity
website: http://www.mylongevity.com.au/index.aspx
FACT SHEET
●●
As most insurers only cover accidental death in the first year
(sometimes in the first 2 years), if you die from a terminal illness
in this time you may not be covered. Check the policy’s terms and
conditions.
●●
Sometimes it can take a while for your family to receive the
insurance payout to cover funeral costs.
MAIN PROBLEMS:
•
Most funeral plans are “stepped” policies and the Premiums for
funeral insurance WILL INCREASE as you get older.
•
Unless you die in the next 5-10 years you will end up paying more
than the cost of the funeral you will receive.
•
If you end up living on the Pension, you will probably not be able to
afford the rising cost of this insurance product, and if you miss your
payments your policy
INCREASING PREMIUMS
Not only will you need to keep making payments over the years, but
premiums usually increase with age and grow over time.
If the premium payments become unaffordable for you and you stop
paying them, your policy is likely to be cancelled. You will not get back the
money that you have paid towards your policy. Different insurers have
different rules, so read the Product Disclosure Statement carefully before
you sign up.
FUNERAL INSURANCE CAN BE MISLEADING FOR CONSUMERS
Marketing: There is almost saturation marketing of funeral insurance
on daytime television. These advertisements target the elderly and the
vulnerable with marketing slogans such as “Don’t be a burden on your
loved ones”.
Point of Sale: In the cases we’ve seen, vulnerable consumers are being
misled about the costs of the premiums. In particular, when they enter
these contracts over the phone, consumers aren’t being told that the
premiums will rise or are not being told the extent by which they will
www.financialrights.org.au
2
FINANCIAL RIGHTS LEGAL CENTRE | FACT SHEET | FUNERAL
FINANCIAL
HARDSHIP
INSURANCE
rise. Many of our clients have told us if they had known before they took
out the insurance that their premiums would have almost doubled in five
years, they never would have taken the insurance out.
Once signed up: Many consumers are reluctant to withdraw from a contract
once they’ve signed up and some are even willing to go through significant
hardship rather than fail to honour a contract they’ve signed up to.
CASE STUDY
FACT SHEET
Nabil is a Disability Support Pensioner. He is from a non English
speaking background whose cultural norm is that elaborate funerals
are held upon the death of a parent. He cares for his elderly mother
and worries about how he will pay for her funeral when she dies. In
2005 having seen a day time television advertisement promoting
funeral insurance, Nabil rang the insurance company and arranged
insurance for himself and his mother. The premiums were much
more expensive that those in the advertisement but he was just able
to afford them. The transcripts from the telephone conversations
with the insurer reveal that when he asked about whether the
premiums would rise, the following occurred:
He was told that it would take 9 years of premiums to pay to equal
the payout on the policy. This calculation was based on the premium
at the time the policy was taken out, implying the premiums would
not rise, and
He was told that in the first year the premium for his policy would
rise by less than $1.00 per fortnight. This hid the steep increase for
his mother’s premium.
After five years the premiums had increased by 83%. Nabil says this
possibility was never made clear to him at the time of the policy’s
inception. He says that had he known the premiums would rise
in the way that they did he would never have taken out the policy.
Nabil maintained the policy for as long as he could. Essentially he
was throwing good money after bad. Eventually he could no longer
afford the premiums and had to cancel the policy. He had paid over
$16,000.
WHEN CAN YOU CANCEL A FUNERAL INSURANCE POLICY?
Under the law you are provided with a ‘cooling-off’ period, normally
around 14 days after you purchase a policy. You can cancel your policy in
this period and get a full refund provided that you have not made a claim.
Some insurers may charge an administration fee for the cancellation.
You can cancel your funeral insurance policy at any time after the cooling
off period by contacting your insurer.
www.financialrights.org.au
3
FINANCIAL RIGHTS LEGAL CENTRE | FACT SHEET | FUNERAL
FINANCIAL
HARDSHIP
INSURANCE
GETTING PREMIUMS BACK
If you think you have been misled by an Insurance company when you
signed-up for funeral insurance, there are some steps you can take.
1. Request any recordings of the phone conversation where you were
told about your funeral insurance policy.
2. Once you have listened to the tapes, if the company did not
adequately explain that your premiums would go up over time, call
the Insurance Law Service. Our number is 1300 663 464. We are a
free service.
FACT SHEET
3. You can raise a dispute with the insurer. If the dispute is not resolved
you can lodge a dispute with the Financial Ombudsman Service.
ALTERNATIVES TO FUNERAL INSURANCE
●●
Pre-paid funerals: can be a good option, particularly if no
chance you’ll move interstate before you die and the company is
reputable. Read the fine print. Many companies will let you pay
by instalments.
●●
Funeral bonds: an investment product that accrues interest.
●●
High-interest savings account: Opening a joint-bank account
in your name, and the name of a family member can be a really
simple and effective way to pay for your funeral for three
reasons:
◊ First, you can put in a small payment every fortnight,
depending on what is affordable to you at any one time
◊ Second, your family member can access those funds as soon as
they are needed for your funeral, unlike insurance payments
that can take time to be released
◊ Third, there is no risk that your payments will be lost if
you miss a few payments, or even completely stop making
payments. Your money is safe, and will continue to accrue
interest.
●●
Super: If you have super, when you die your super fund will pay
out your super balance and any associated life insurance to your
family. Some of this money can be used to pay for a funeral, and
requested urgently. Talk to your super fund to see what approach
it takes.
◊ Getting Super released early: In some circumstances (like if
you have a terminal illness) you may be able to get hold of your
super early to cover funeral expenses. You may also be able to
get your super early to pay funeral expenses of a dependent.
Go to the Department of Human Services webpage on early
release of superannuation or see getting super early for more
details.
www.financialrights.org.au
4
INSURANCE
FINANCIAL RIGHTS LEGAL CENTRE | FACT SHEET | FUNERAL
FINANCIAL
HARDSHIP
●●
If you are a Veteran: You may be entitled to funeral payments
from the Department of Veterans’ Affairs (DVA), your trade
union, or your state or territory government. See the publication
DVA: What to do when someone dies 13 32 54 (1800 555 254
for regional callers).
●●
If your family is on Centrelink: A bereavement payment may be
available through the Department of Human Services. See their
webpage on what to do following a death or call 13 23 00 (1800
810 586 for TTY service).
SUMMARY
FACT SHEET
•
•
•
Take Care! Unless you die within 5 years of taking out the policy
this is unlikely to be the best product for you.
If you are on the pension, there is a very high probability that you
will have to cancel the policy before you die because you’ll be
unable to afford the premiums.
If you are on a higher income and can afford the rising premiums
there’s almost certainly a better product out there.
IF YOU ALREADY HAVE FUNERAL INSURANCE
The Insurance Law Service would be happy to talk to you about the
possibility of getting some of your premiums back. Our number is
1300 663 464. We are a free service. You can lodge a dispute with the
Financial Ombudsman Service.
NEED SOME MORE HELP?
See Fact Sheet: Getting Help for a list of additional resources.
Last Updated: February 2014
www.financialrights.org.au
5
INSURANCE
FINANCIAL RIGHTS LEGAL CENTRE | FACT SHEET | FUNERAL
FINANCIAL
HARDSHIP