We recommend that consumers understand what funeral insurance really covers them for, and do their homework before signing up. Caps on premiums, exclusions, and more – there are certainly plenty of potential pitfalls when choosing a policy.
Here are the six traps we consider problematic for funeral insurance, and how to avoid them.
1. Uncapped funeral insurance premiums
Is there a cap on your funeral insurance premiums … or will you keep paying and paying and paying until you eventually leave the earth? A good value funeral policy will specify a cap on the amount you can pay in premiums over the life of the policy.
Funeral insurance policies with a sum insured cap may be attractive to those who can afford to pay more in ongoing premiums, and they remove the possibility of paying more in premiums than your sum insured.
Age caps may be attractive to those planning to take out cover at a later stage in life, as the premium payments cease at the age of 90. But be aware that with some policies the total amount of premiums paid can add up to twice the sum insured, if not more.
2. Total premiums not paid back
If you do end up paying more in funeral insurance premiums than your benefit, is there a “guaranteed benefit”? That is, will the insurance provider repay to your estate those extra premiums you’ve paid over and above the funeral benefit?
There’s no need to choose a provider who will rip you off by keeping the excess premiums you’ve paid. Compare your options for funeral insurance policies using the Canstar website:
In the market for life insurance? The below comparison table features current funeral insurance products on the market with monthly premiums at no extra cost, sorted by our star rating (Highest-lowest) for a female policy holder in their early fifties and is a non-smoker.
3. Taking out funeral insurance too young
It can be a huge trap to take out a funeral insurance policy too early, before you “need” it. This is because you can end up paying so much in premiums that the benefit would not be worth it, and as you aged the premiums would be likely to become unaffordable.
Not everyone needs funeral insurance, as some people may have a funeral benefit covered by their life insurance or government benefits. You can read more about who is best suited for a funeral insurance policy in the rest of our annual Funeral Insurance Award report.
4. More – or less – funeral insurance cover than you need
As we know, the average funeral costs around $11,000 to $19,000 and the typical funeral insurance policy covers up to $15,000. However, more than 1 in 10 funeral policy holders – that’s 92,532 people – were covered for more than $15,000 in 2013 , according to ASIC. So if you’re not careful, you could end up paying more in premiums than the cost of your funeral.
Then there’s the other side of the problem – people who don’t have enough cover. If a budget funeral costs around $6,000 and your funeral insurance policy only covers your estate for a benefit of $5,000, the insurance policy is not working hard enough for you.
5. Dying without a will
2 in 5 Australians (40%) do not have a will, according to a joint study by the Australian Centre for Health Law Research, the University of Queensland, and Victoria University in 2015, Having the Last Word. Intestacy (not having a will) was naturally most common in young people, with the majority of under 40s not having a will.
Thankfully, the study showed that 93% of people over the age of 70 have a will. Keeping your will up-to-date is vitally important for these people. 46% of survey respondents with a will had made changes to their will since they first wrote it.
The study analysed cases of contested wills in Australian courts, survey data from the Public Trustee’s Office in each state and territory, and a survey of everyday Australians’ feelings about the “last will and testament”. The most common reason for not making a will was procrastination – “I haven’t got around to it.” In this article, we bust some of the myths around wills and estates, such as “I don’t need a will”.
6. Exclusions might apply
There are a few exclusions that apply to most policies for a certain waiting period. For the first 6 months of your policy, most insurers will only cover your estate for you passing away from an accidental death, and they will not cover:
- Passing away from an illness in first 12 months of policy
- Passing away from suicide or self-inflicted injuries in first 12 months of policy
7. Stepped funeral insurance premiums
Warning: Providers can have two different policies, which have different costing methods, so keep your eyes peeled.
Stepped premiums means the premiums for the policy increase in price each year as you grow older. This means you could get trapped in a policy that is becoming increasingly expensive at a stage of life when your income is fixed or even decreasing.
What might the policy cost in 10 or 20 years? Get a quote for how much the policy will cost you over the course of your life, and do the sums to work out whether that will outweigh your sum insured.
If you were to stop paying the premiums because you can no longer afford them, your policy would be cancelled and you would have wasted the money you’d already spent on premiums.
Here at Canstar, we only research and rate level premiums, which do not increase each year based on your age.
If avoiding the traps and comparing policies sounds like a stressful exercise, sit back and let Canstar do the hard work for you. We’re here to help make your decision-making process smooth and easy. In 2017, we researched and rated 17 policy products from 13 providers in Australia.