Do you understand funeral insurance?

Three years ago the Australian Securities & Investments Commission (ASIC) released research that showed consumers did not have a good understanding of the funeral products they were buying to help pay for their funeral. If anything they tended to settle for the first product they found when trying to avoid being a burden on others. They were less likely to pick the best product for their circumstances or take value for money and long-term costs into account. They also had difficulty understanding the three different types of products lumped under the term “funeral plan” in advertising.

What are the three types of “funeral plan” products?

In short, the three types of products that are commonly categorised as funeral plans are:

Pre-paid funeral plans: Choose and pay in advance at the funeral director of your choice. The type and style of funeral you want is set out in a contract and paid for at an agreed price. You can pay this directly to the funeral director, who will invest the funds in a funeral trust, or you can purchase a funeral bond and assign the benefit to the director. Check different websites for more information and call them to clarify anything. If you prefer, make an appointment and talk over your options in person.

Funeral Bonds: These are investment products that help consumers save for funeral expenses, with funds withdrawn after death to pay for the funeral. Funeral bonds are managed investments that earn interest which is added to the capital. Your money is invested in an independently managed funeral fund and it is only available on death when it is paid to the estate or to the funeral director to cover funeral expenses.

Funeral Insurance: This is not a savings scheme but an insurance policy to which you contribute regular monthly or fortnightly premiums for an agreed amount to be paid out after death occurs at a later date. Funeral insurance is a good option for those aged 60 and over who can?t get life insurance. The key to funeral insurance is to make sure you can afford the premiums, even if they increase with age. Do your sums to make sure you won?t pay more in premiums than the value of the policy payout.


When it comes to funeral insurance…

As mentioned, ASIC expressed concerns about the way that funeral products were portrayed and particularly about the overall  potential cost of the product.

“?It is important that funeral insurance ads create realistic consumer expectations, in particular about the cost of the product,” ASIC Deputy Chairman Peter Kell said.

“ASIC generally considers there are features of funeral insurance that can be particularly difficult for consumers to understand such as increasing premiums and that premium payments can exceed the actual benefit to be paid out under the policy,? Mr Kell said.

?Designing funeral insurance policies with these types of consumer risks in mind is not only likely to provide significant benefits to consumers but also likely to result in clearer advertising messages.”


Since then, ASIC has put considerable effort into working with insurance companies to change the way advertising portrays how the features of funeral insurance are conveyed to consumers. For their part, insurers were, and continue to be, committed to making the recommended changes to ensure similar advertising standards across the funeral insurance industry.

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