Evidence of an initial impulse purchase, or a lack of consumer knowledge? ASIC suggests it is the latter.
“The high rate of cancellations points to problems not only with cost, but the design, marketing and sales of funeral insurance,” said ASIC Deputy Chair Peter Kell.
“It appears that many consumers do not understand important features of the product until after they have signed up.”
According to ASIC, the number of policies cancelled in 2014 was 80% of the number of policies sold. Nearly 55% of cancellations occurred during the first year of the policy. 65% of cancellations were initiated by consumers while 35% were made by insurers for non-payment of premiums. The main reason for cancelling was cost.
“ASIC has made a number of recommendations for insurers to assist consumers better understand the product they are purchasing. We also urge buyers of funeral insurance to better inform themselves about the product and ensure they have a clear understanding of the premiums to be paid long-term’, Mr Kell said.
Canstar’s 2015 analysis of funeral insurance for those aged over 60 found that choosing the right funeral insurance policy can be a good option for those who can’t get life insurance with its inbuilt funeral benefits and for those who may not have a lump sum of cash that relatives could access in the event of their death.
It can be an emotive issue for people. According to a Canstar Blue survey of approximately 3,000 Australian adults, undertaken earlier in 2015, approximately 16% of respondents said that they had had to pay for the funeral of a relative out of their own pocket, and 35% said that they would encourage relatives to take out funeral insurance to meet the cost of their funeral.
When choosing a policy though it is important to put emotion aside and remember that not all funeral insurance policies are the same; complex policy documents can be the cause of some consumer misunderstanding. With ASIC concluding that cost is a driving factor in high cancellation rates, it is important for consumers to understand how the funeral insurance premiums will be calculated over time. Does the policy have a premium cap (when premiums cease) and if so at what age does that cap kick in?
To be eligible for Canstar’s ratings, funeral insurance products had to be, among other things, a level premium product. You can view the plans assessed here.
ASIC’s funeral insurance report has made several key recommendations for insurers:
- Provide an upfront estimate for consumers of the total cost of the policy;
- Clearly and prominently disclose where there is the possibility that the total premiums payable under a policy could exceed the benefit amount;
- Do more to ensure consumers understand key features of the policy when it is sold to them (whether by phone, in person or online), especially when selling to vulnerable groups like Indigenous consumers.