Funeral insurance cost trap can add to family’s grief

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 funeral 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 funeral insurance 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 offguard by extra expenses.

InvoCare’s general manager preneed, 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 cover you paid for.”

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 governmentapproved 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.”