We all want to be able to provide for our loved ones, even if we’re no longer around, but many Australians are unaware of the fact that funerals can cost up to $15,000. Funeral insurance can help your family in the face of significant financial costs when you pass away.
Funeral insurance however, is an investment that needs careful consideration as there can be traps that you're unaware of. Make sure you select an insurance product from a reliable funeral insurance provider to get the most out of your money.
What's in this guide?
- Reputation. Consider whether the company has a reputation for delivering what it promises. It's a good idea to look at how long the company has been around and whether or not it has good reviews.
- Policy. Look carefully at the funeral insurance policy a company offers and consider who underwrites the cover, what the waiting period is and what are the exclusions. It's also a good idea to check if these key features are included.
- Claims process. Check the company’s product disclosure statement (PDS) or website to find out what will be required of you in the event of a claim. Here you can find out how long will it take for your claims to be processed as well as the type of customer service it offers.
A reliable funeral insurance provider will offer policies that have:
- Lump-sum payment of your choosing. Funeral insurance companies provide a lump-sum payment to your beneficiaries when you die.
- Fast payment of the benefit. This payment is usually received within 24 hours, giving your family the financial capacity they need to give you the farewell you want.
- Flexible payment options. A good policy will give you the option of stepped and levelled premiums.
- Value guarantees. Value guarantees ensure you never pay more in premiums than your sum insured. A common type of value guarantee is a premium cap, where your premiums are ceased when they reach the sum you originally insured.
Make sure you look out for these traps when choosing funeral insurance:
- Paying too much. Perhaps the most common funeral insurance trap is choosing a policy that doesn’t put a cap on the total premiums you pay. The end result of this is that you could end up paying enough in premiums to cover the cost of your funeral several times over. Read the fine print to make sure you won’t end up significantly out of pocket.
- Increasing premiums. Many funeral insurance policies offer premiums that increase every year as you age. But keeping up with these rising premiums may not be possible if you’re on a fixed income, so you may need a policy with level premiums.
- Stopping premium payments. If you can’t keep up with premium payments and you stop making payments, your funeral insurance policy will most likely be cancelled. Some insurers won’t even give you back the premiums you have paid towards your cover, so check the fine print to make sure you’re aware of what will happen if you stop paying premiums.
There are two regulatory bodies to consider when it comes to funeral insurance:
- Australian Securities and Investment Commission (ASIC). An independent government body, ASIC regulates companies, financial products and services to ensure that consumers, creditors and investors get a fair deal.
- Australian Prudential Regulation Authority (APRA). Meanwhile, APRA oversees and regulates the prudential practices of banks, credit unions, super funds and life insurance companies. APRA aims to ensure that life insurance companies deal openly and honestly with consumers and that the insurance is offered fairly.
Back in 2013, CHOICE and a selection of Australian consumer advocacy groups launched a campaign to call for reforms to funeral insurance. The main reason for this was to address the unfair policy features and traps that many consumers faced.
As a result of this backlash, many providers now offer policies with features that guarantee better value for money for consumers. These features include:
- Level premiums. These premiums will never increase, allowing you to budget for their repayment now and into the future.
- Reduced premiums. Some policies will actually lower the cost of your premiums each year after you’ve held cover for a minimum period.
- Premium caps. Many policies now impose a cap on the total cost of your premiums, which means the premiums you pay will never exceed the sum insured.
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