Is funeral insurance worth it?

Funeral cover is all but dead and buried

One of NZ’s biggest insurers just ceased offering an insurance product that we’ve long said was nearly always a waste of money: funeral insurance. In fact, this type of insurance policy was placed sixth on our list of biggest financial rip-offs.

What is funeral insurance?

Not to be confused with life insurance, funeral insurance is a type of insurance policy that can help your family alleviate the financial burden of having to pay for your final send-off expenses. This kind of cover gives you the opportunity to plan ahead and make sure you are given the funeral service that you want. Sometimes, funeral insurance can be called several different names including “Funeral Plan Insurance” or “Funeral Cover” or a “Funeral Plan”.

A funeral could cost from $8,000 - $15,000 depending on the type of funeral chosen.

What’s so bad about funeral cover?

If you’re reading this, there is a 100% chance you will die someday. So, using insurance to meet the known expenses related to your death doesn’t make much sense.

Unless you die within about five years of taking out a funeral policy, you’ll nearly certainly pay more in premiums (the monthly fee to keep the insurance in place) than the cost of your funeral. The cost of keeping the policy can quickly increase as you grow older and your life expectancy decreases. Most people with funeral insurance pay far more in premiums than the insurance company pays out when they die.

A Consumer NZ study completed in 2016 sampled funeral insurance policies available to 64-year olds for $10,000 worth of funeral cover. Consumer NZ found that if the policy holders then lived a further 20 years, some would have paid more than double the cost in premiums than their family would ever receive as a benefit.

Related article: Never cancel health insurance

When is funeral insurance a good idea?

Funeral insurance can make sense if someone and their close family have very limited financial resources so wouldn’t be able to pay for a funeral themselves, and doesn’t want the burden to fall on a spouse, family member, or even on the taxpayer.

What alternatives are there to funeral insurance?

Planning for how you are going to pay for your funeral is a good idea and will save your family money and stress when the time comes, but funeral insurance is nearly never the best option. Here’s a few different options:

• Savings: for most people setting aside a sum to meet this cost is the best idea. Opening a joint savings account in your name, and the name of a spouse or family member can be a really simple and effective way to pay for your funeral for three reasons:
• First, you can put in a small payment every fortnight, depending on what is affordable to you at any one time.
• Second, your family member can access those funds as soon as they are needed for your funeral, unlike insurance payments that can take time to be released. Naturally, if the family member isn’t your spouse you’ll have to trust them absolutely!
• Third, there is no risk that your payments will be lost if you miss a few payments, or even completely stop making payments. So long as you’re with a major bank, your money is as safe as it can get, and will continue to accrue a little interest.
• Pre-paid funerals: can be a reasonable option if the company is reputable, and preferably if the pre-paid sum is held in trust. Ensure you read the fine print!
• Life insurance: For readers with life insurance, most major insurers will immediately pay an initial lump sum of $10-15,000 to meet funeral-related expenses. The rest of the policy will be paid out later.
• If you are a veteran: You may be able to receive a one-off financial contribution to funeral expenses. You can learn more at the relevant Veterans’ Affairs webpage, or by contacting Veterans’ Affairs directly.
• Other organisations: major organisations that you may be a member of, such as Church groups, sometimes pay for some or all the funeral costs of members.

What if you’ve already got funeral insurance?

It may be that your funeral cover isn’t worth the money.

Naturally, before ever cancelling an insurance policy you should carefully consider the pros and cons plus have a chat with one of our friendly insurance advisers. It would be our pleasure to discuss anything above, or any related matters. Just get in touch.

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