R.I.P. OFF! WHY YOU DON’T NEED FUNERAL INSURANCE
This fact sheet is for information only. It is recommended that you get
legal advice about your situation.
CASE STUDY
In 2006 Pamela took out a funeral insurance policy. She told
the telephone salesman that she could afford premiums of
$30 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 (a
100% increase), but her cover is only $8500 (a 20% increase).
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.
©2017 Financial Rights
All rights reserved.
Throughout this period Pamela’s only source of income was
the aged pension. Her situation now is that after paying for her
nursing home accommodation and funeral insurance, Pamela
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 Pamela will be forced to cancel her
insurance policy and all of her payments will be lost.
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 Plan 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 as the beneficiary.
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, you usually need to keep paying the premiums to keep
your insurance cover, so you need to think about whether you can
afford funeral insurance over the next 10, 20 or more years. It is
common that people with funeral insurance pay more in premiums
than the insurance company pays out when they die. Under some
policies, as you get older the cost of funeral insurance will increase.
Also, it is important to understand that, generally speaking, if you
cancel the funeral insurance your premiums are not refunded to
you. You would be better off putting your money in the bank!
www.insurancelaw.org.au
1
FINANCIAL RIGHTS LEGAL CENTRE | FACT SHEET |FUNERAL INSURANCE
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?
●●
Consider that, as you age, it is likely that your income will decline
and your expenses will increase (for things such as home help
and medical costs) and you may not be able to afford to keep
paying the premiums. A good question to ask is “will I get my
premiums back if I cancel the contract in five year’s time?”
●●
Will your premiums increase and will you be able to keep paying
them? A good question to ask is “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
●●
Funeral insurance policies usually have a 12 month accidentonly period. That means that a benefit will not be paid upon your
death unless your death is caused by an accident. Remember, this
will generally also apply if you change from one policy to another.
●●
Sometimes it can take a while for your family to receive the
insurance payout to cover funeral costs.
FACT SHEET
THE MAIN PROBLEMS ASSOCIATED WITH FUNERAL INSURANCE:
•
You can end up paying more in insurance premiums than the
benefit paid upon your death.
•
IF YOU CANCEL the funeral insurance policy, you will usually NOT
GET YOUR MONEY BACK.
•
Many 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 a pension, you will probably not be able to
afford the rising cost of this insurance product, and if you miss your
payments your policy will be cancelled and you will lose all of the
money you have paid so far.
INCREASING PREMIUMS
Not only will you need to keep making payments over the years, but
www.insurancelaw.org.au
2
FINANCIAL RIGHTS LEGAL CENTRE | FACT SHEET | FUNERAL INSURANCE
premiums often 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
FACT SHEET
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 leave your family with
financial stress”.
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 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.
False Assumptions: Many callers to the Insurance Law Service believe
that the insurance company keeps the premiums they pay in an account,
perhaps like an endowment policy. It is important to understand that
funeral insurance does not work that way. Think of paying funeral
insurance premiums in the same way as, say, car insurance where you pay
by the month. Generally, you do not get the premiums back if you cancel
the contract.
Paying for more than you get: One of the risks with funeral insurance
is that you may pay more in premiums than the benefit amount. For
example:
• Most funeral insurance policies require you to keep paying premiums
until you die, even if you have already paid the insurer the amount of
the benefit.
• Some policies have a term that you cannot pay more in premiums than
twice the benefit amount.
• Some policies require you to pay higher premiums so that you can stop
paying once the benefit amount is reached.
• Some policies advertise that “the benefit will never be less than the
total premiums you’ve paid for each life insured”. This sounds like the
policy allows you to stop paying once you’ve paid the benefit amount.
In fact, you are usually required to keep paying but the amount paid
over the benefit amount will be paid to your beneficiary upon your
death. BUT… if you cancel the policy before your death then nothing
www.insurancelaw.org.au
3
FINANCIAL RIGHTS LEGAL CENTRE | FACT SHEET | FUNERAL INSURANCE
will be paid.
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 entered.
WHEN CAN YOU CANCEL A FUNERAL INSURANCE POLICY?
Under the law you are provided with a ‘cooling-off’ period, normally
around 30 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.
FACT SHEET
You can cancel your funeral insurance policy at any time after the cooling
off period by contacting your insurer.
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 and independent service.
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
Australia (1800 367 287 or 1800 FOS AUS).
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.
●●
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
www.insurancelaw.org.au
4
FINANCIAL RIGHTS LEGAL CENTRE | FACT SHEET | FUNERAL INSURANCE
miss a few payments, or even stop making payments. Your
money is safe, and will continue to accrue interest.
●●
Funeral bonds: an investment product that accrues 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 with
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 details.
FACT SHEET
●●
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
•
•
•
Take Care! Unless you die within 5-10 years of taking out the
policy this is unlikely to be the best product for you.
If you are on the pension or your expenses increase, 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
We at 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 and independent service.
You can also 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 2017
www.insurancelaw.org.au
5
FINANCIAL RIGHTS LEGAL CENTRE | FACT SHEET | FUNERAL INSURANCE