Funeral insurance – a RIP-off?
Insurance companies are bombarding television viewers with guilt ridden mature looking actors, trying to extract funeral insurance premiums from younger baby boomers – but is it worth it?
The high intensity emotive pressure campaign targeting younger seniors has caught the attention of the Australian Securities and Investment Commission (ASIC) which has taken a close look at how Australians can pay for a funeral.
ASIC has released research showing some consumers do not have a good understanding of the funeral products they are buying to help pay for their funeral.
ASIC research found that consumers will settle with the first product they find in trying to avoid being a burden on others. They are less likely to pick the best product for their circumstances or take value for money and long term costs into account.
ASIC’s Consumer Advisory Panel (CAP) commissioned research to explore consumer awareness and understanding of three common products that consumers use to meet future funeral costs:
prepaid funeral plans – where consumers choose and pay in advance for their funeral
funeral bonds – investment products that help consumers save for funeral expenses, with the funds withdrawn after death to pay for the funeral
funeral insurance – where consumers pay monthly or fortnightly premiums for a fixed amount of cover to be paid out after death.
Key findings of the research, published in Report 292 Paying for funerals: how consumers decide to meet the costs include:
Many people did not understand the overall cost of funerals
People were not aware of the alternative ways to meet funeral costs, such as prepaying by instalments or buying funeral bonds
The term ‘funeral plan’ was used to describe the three different funeral products in advertising material, making it difficult for consumers to differentiate between them
Many people did not understand some of the key features of funeral insurance: increasing premiums, total cost when compared to the real cost of a funeral, and what will happen if they miss payments.
People struggled to find clear information about the different types of funeral products and the features of each type.
ASIC Commissioner Peter Kell said ‘We recognise that planning for a funeral can be a difficult process. It is important for people and families to understand what they are buying and the difference between each product, so they have peace of mind and pick the best product for their financial circumstances.’
ASIC’s MoneySmart website www.moneysmart.gov.au has comprehensive information about funeral options, explaining the pros and cons of each.
MoneySmart encourages consumers to:
Think about all your options – you might have super, life insurance or other benefits that can help you or your family with funeral costs.
Set up a savings account. Use MoneySmart’s compound savings calculator to see if you can save for your own funeral rather than paying for a funeral product.
Go to MoneySmart’s Paying for your funeral page and read about the different products and the pros and cons of each. For example, with funeral insurance you are not saving for funeral costs but buying insurance to meet those costs at some future date.
'Premiums for funeral insurance usually increase with age.' Mr Kell said. 'If you can't keep up the payments you are likely to lose all the money you have paid towards the insurance.'
ASIC is encouraging people who want to plan their funeral to look at the real cost before they put their money on the line.
As part of its broader review of financial products and services advertising, ASIC is specifically monitoring funeral insurance marketing to ensure consumers are not faced with misleading or deceptive practices.
SeniorAu has previously written what the television adds don't say is:
If funeral insurance is taken out at age 50 to cover a $6,000 funeral:
Premiums will cost more than the benefit by age 71
By age 90, the total spent on premiums would be $142,405.
If funeral insurance is taken out at age 70 to cover a $6,000 funeral:
Premiums will cost more than the benefit by age 78
By age 90, the total spent on premiums would be $48,471.
People intending to prepare financially for their funeral, should consider all available information, take wise counsel, and make a decision which best suits their circumstances.
19 July 2012.