20jul funeral insurance slammed hero
23 July 2020

Funeral insurance overpriced and overhyped

Overpriced funeral insurance policies are leaving consumers thousands of dollars out of pocket.

An 85-year-old woman who paid $18,900 for funeral insurance worth just $10,000 has been denied a refund of overpaid premiums by insurer Fidelity Life.

The woman took out funeral insurance in 2003, paying for cover for herself and her son. The policy had a value of $5000 for each life insured.

Over 17 years, the woman ended up paying $8900 more in premiums than the policy would pay out for funeral costs.

Fidelity Life has since offered to stop billing her for further premiums and make the policy “paid up” to $5225 for each life insured. However, it won’t refund premiums that have been paid above this amount.

No refund policy

Fidelity Life defended its stance stating, the “policy is working as it’s designed to so we’re unable to offer [the customer] a refund”.

It said, “with risk-based insurance, there’s no money refundable if the insured risk doesn’t occur or if the amount of a claim is less than the premiums paid”.

We don’t think this argument stacks up.

Funeral cover isn’t like other risk-based insurance products, such as house insurance. Your home may or may not burn down. But funeral insurance covers a certain event – everyone is going to die. There’s zero risk it won’t happen.

Selling funeral policies that result in customers paying thousands more than the cover will ever be worth doesn’t wash with us.

Overhyped and oversold

Funeral insurance is heavily promoted, playing on people’s fears about being a financial burden on their families. However, our research has found it can be an expensive way to pay for your final send-off.

Marketing of these policies also risks misleading consumers about the cover they’re getting: policies can require premiums to be paid until the person is 90 but the lifetime costs are seldom disclosed.

If customers can't afford to keep up premiums, there’s no refund if they cancel. Most policies only have a short cooling-off period after purchase when the customer can cancel and get a refund.

Our advice

If you want to put money aside for your funeral costs, the simplest option is setting up a savings account. You’ll have control over your money and get to keep the interest it earns.

If you’re considering funeral insurance, check the terms and conditions carefully. Don’t buy a policy that requires you to pay more in premiums than it will ever pay out.

We’re pushing for changes to consumer laws to stop companies selling funeral insurance, and other insurance products, that have unfair terms and provide poor value for customers.

Junk insurance policies in rubbish bin.

Help us fix the insurance market

Consumers are paying more than ever for insurance. But they're not getting a fair deal. We're calling for simple changes that will help ensure the market works better for consumers.

What needs to change

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Jon-Paul H.
22 Dec 2020
Funeral Plans have their place

Frankly, as a first go to funeral plans are not great value. However, that's often more a function of education and understanding than it is of the plan itself.

I have seen many people give up a perfectly good life cover policy to go and buy a crap funeral plan. Why? the label met their need. Regardless of the fact they could convert their life cover to a level premium cover at a lower level of cover and be significantly better off.

Funeral cover is life cover under another name, life cover is designed to cover funeral and final expenses. This is a fundamental understanding gap for many buying funeral cover.

This is where getting advice, not sales, is critical to ensuring that people accessing these products are getting the best option for them presented.

Sure insurance advisers are paid on commission, and Consumer has its issues with that. At the same time, most advisers have a fee option where there is no commission involved. Clients need to ask.

However, that choice is often one that makes it harder not easier for clients financially.

People needing advice in these areas don't have the budget to pay for the advice as the point of the insurance cover is to manage a lack of resources. Which is where commission, funding of the advice from the premiums paid, comes in and enables people to access advice without huge upfront fees.

We already see many people without Wills when they pass away, and that's for the sake of a $50-150 cost, I can't see anyone fronting up to pay fees for advice on insurance when this is already a clear issue.

Accountants and lawyers have fees and people see them as expensive, every profession, including financial services, have similar bills to pay, and as a result, they all have similar fees.

Funeral covers have a place when well advised and people are given all the information they need. For example, a family finding they have significant medical challenges, not imminent death but a significant possibility in the future. Taking a funeral plan is a good option to see them through. If the worst happens that have something, if not and they come out better even better. In time once the medical aspects have been addressed they can then look to acquire an underwritten life cover that is cheaper and more suitable for their needs.

Fundamentally it is about choice. And there are no free rides, there is pay the premium from a young age and have low premium with the security of cover or get it later in life and face the consequences of health conditions that increase premiums, resulting in much the same premium spend either way. The choice is with the consumer, when they get advice earlier, they can make better choices.

First, before all of that, comes education and understanding that people need to seek advice on this stuff, as it is more complicated than most think it is.

Doug M.
24 Aug 2020
Disagree with Consumer

Insurance companies are an industry based on risk assessment.

Almost all of us take out insurance on all or some of the following: our lives, cars, buildings, belongings, travel, health, income, funeral, accidents, mortgage, etc. We pay in the hope that there will be some financial help there if we need it when the "incident" occurs.

Sometimes we end up paying more in premiums than we get back in "benefits" and that's just the way things go. This can happen especially for health, travel, funeral, house, and belongings insurance. Again it is all based on risk and we can see this happening with building insurance premiums especially in Wellington. When I travel overseas I do not expect my premium paid back to me when I return if I do not make a claim.

If Insurance companies always lost money on policies they would no longer be in business and we the consumers would have to bear all the risk and all the cost ourselves.

So, I do not at all agree with the position of Consumer regarding funeral insurance. This is just another case of an insurance product and premiums based on the calculated risk. Some families of the insured will "win" and get a payout, and other policy owners still keep paying long after they exceed their insurance company assessed life expectancy.

in the case of funeral insurance the immediate family themselves should have a discussion regarding whether it is actually worthwhile taking it out in the first place. In most cases I expect the answer to be no.

Neville C.
22 Dec 2020
Prove it

Please can insurance companies issue an account of premium income versus claims paid.
In the UK after a disaster the insurers wanted a bail out and PM disclosed that even with this disaster the claims were GBP 4 billion against premiums of 11 billion for the same cover.

Warwick A.
26 Jul 2020
Total premiums paid should be capped.

I agree with consumers campaign on this issue. Insurance companies providing this form of cover must be absolutely creaming it as they seem to have an unlimited budget to screen simplistic TV advertisements promoting these policies . There may be some justification for policy holders to pay slightly more than the amount they are covered for but in my view $8900 extra for $10,000 worth of cover is nothing but a greedy rort by the insurers concerned.

It should also be remembered that the insurers will be investing the income received from policy holders and will be earning a substantial income from the interest and dividends received from such investments.

David C.
18 Aug 2020
Funeral Cover Insurance

For those who are criticising Consumer for highlighting that insurance companies have the right to expect customers to pay more in premiums than the sum assured beggars belief. Insurance companies are in the business of making a profit from their products sold. No insurance company would ever promote a product that when actuarially tested would show a loss. Currently so called respected companies have got into the market as they now see an opportunity to capitalise on an unsuspecting public, who are unaware that they could pay more in premiums than the sum assured. If customers became aware that they would be paying approximately twice the amount in premiums than what their estate would receive is scandalous. To ensure the companies cover their backsides they now include comment "that premiums paid may or could be more than the sum assured". Personal experience occurred when taking out cover with a notable insurance company who advertise regularly on TV with a well known rugby commentator has this clause in its contract, and is also included by other companies who see this as an opportunity to capitalise to make money. When questioned why this should be so the reply is " Sorry we cannot divulge as it is commercially sensitive information!" This comment does not satisfy most people and questions their credibility and what have they got to hide. It is good to see that at last, there is an organisation now offering genuine open ended contracts that are far more honest and attractive. This was not available when I took mine out 20 years ago. Consumer should be congratulated for taking up the cudgel and drawing the attention to the NZ public. We want fair treatment and not be expected to support the profitability of the insurance industry to the extent where clients appear when a claim is made to have paid over 50% more in premiums. The industry certainly has some explaining to do!
David C

Shayne M.
25 Jul 2020
Consumer have got it wrong

Like the other chap I think Consumer have got it wrong. The payout has to be an average. If the average death age is say 80 and people take out the policy at 70 some people will die at 71 and be paid in full. Others might life until 90. Sure they will pay more but how does Consumer expect to pay the full cover amount to the ones that die at 71?

Whiona P.
25 Jul 2020
I agree with Consumer

My mum and myself are currently in the same predicament with AA Life.
and I am awaiting an outcome for my mum with AA Life.
My mum is 85yrs old and is still paying $40 from her pension. Thank you for putting this issue out in the open Consumer.

25 Jul 2020
Consumer confused

I completely disagree with Consumer on this issue but have no new reasons beyond the very good ones already mentioned by previous commenters. Commercial insurance cannot work unless some contributors pay more than they receive.
Consumer sullies its reputation by taking this illogical position.

Beverly W.
25 Jul 2020
Daylight robbery

Focus on the funeral directors. Their charges are ridiculous.

Michael G.
25 Jul 2020
Consumer position iditotic

Since when do you expect a refund when your household ,car ,contents insurance cover is cancelled or ceases.
Many funeral covers require no underwriting for persons signing up.
So any person with any ill health condition can sign up for the benefit. The insurer takes on all health risks in this event.they do then have one or two provisions regarding what causes death within 12 to 24 months.
This risk is reflected in higher premiums over time but your covered from day one .
Most people with life assurance will have planned for the cost of their funerals together with their Deceased Estate costs .

Glenn B.
25 Jul 2020
Wooly thinking

With respect, this is nuts. Your position seems to be that those who live a long time should never pay more than the cost of their funeral in premiums, but those who die early should receive their full payout despite having paid only a small fraction of that in premiums. This is the very definition of an unsustainable product, as it would quickly send the insurance companies broke.

The article also reflects confusion about how insurance works. As you point out, there is zero risk of not receiving a payout in the case of funeral insurance, so the 'problem' of premiums-paid-being-more-than-the-payout is actually less likely to arise than in other 'risk-based insurance products'. The latter are indeed different, but not in the way you seem to think.

Mike Bissenden
23 Jul 2020
Funeral insurance

What about the seniors insurance which will pay you back all the premiums you pay in if more than cover.

Robert L.
23 Jul 2020
That's the way insurance works.

Funeral insurance IS risk-based insurance.

The risk to the insurance company is that you will die before your premiums add up to your benefit and the risk to you is that you will live a long time and will pay in more in premiums that is paid out as a benefit.

If everyone paid in less in premiums than the benefit pay-out then the insurance company would go under. So some people pay more than the benefit pay-out and some pay less. That's how insurance works.

The way funeral insurance is sold is a different matter.

Denis K.
25 Jul 2020
Poo reasoning

Poorly reasoned article. Whilst you may not like the product and savings offer an alternative what’s your suggestion for insurance cos where people die sooner than premiums paid and it produces a policy loss on that customer. ? Jeez