The funeral trap that could be costing Australians dearly
None of us can escape death or bills, but older Australians who think they’re saving money by signing up to funeral insurance may be sadly mistaken.
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Australians with funeral insurance policies could be paying tens of thousands of dollars more than they need to, new research has found.
A study of 18 insurance products by funerals giant InvoCare – using calculations from Rice Warner Actuaries – has found a senior who takes out a policy could pay more than $40,000 in premiums if they don’t claim on it for 25 years.
A comparable prepaid funeral bought at today’s prices would cost $6500, InvoCare found.
The Federal Government has been tightening the rules around some funeral insurance products after the financial services royal commission heard stories of customers being ripped off.
Prepaid funerals have critics too, with a report last month by consumer group Choice saying prepaid was a big business for major providers and some customers were caught off-guard by extra expenses not covered by prepaid contracts.
InvoCare’s general manager pre-need, Michael Hamilton, said his company’s research found one third of people who bought funeral insurance thought it was the cheapest option.
“Most people take out insurance for events that are unlikely to happen or they hope are not going to happen,” he said.
“With your death, it’s not a matter of if it’s going to happen – it’s when.
“With funeral insurance you are paying for a specific level of cover. If you have a long life – which is a great outcome – and are paying premiums for that time you are still only going to get the amount of cover you paid for.”
Mr Hamilton said funeral insurance providers had marketed themselves as cost-effective, and many people were unaware of alternatives such as prepaid funerals, which could be paid in instalments.
“A lot of our families decide to pay an initial 30 per cent deposit, and pay the balance off over one, two or three years in equal instalments per month,” he said.
Farrell & O’Neill Funerals director Steve Farrell said he told families to “steer clear” of funeral insurance.
“We have had families who thought mum had funeral insurance only to find out payments were missed at some point and it wasn’t valid,” he said.
Mr Farrell said prepaid funeral money was invested with independent government-approved funds.
He said his business did not actively market prepaid funerals but “if people want them we do them”.
“I tend to find people who do prepaid funerals are very practical people who want to take pressure off loved ones, and they often want a simple coffin and simple service,” Mr Farrell said.
“A lot of people don’t want to talk about it, and some family members have no idea whether people want a burial or cremation.”
About 15 per cent of Australia’s 35,000 funeral services annually are prepaid, InvoCare says.
Originally published as The funeral trap that could be costing Australians dearly