Is Funeral Insurance Worth It?

Funeral cover is all but dead and buried

In short: funeral insurance is one of the worst-value financial products available in New Zealand. Most policyholders pay more in premiums than their family will ever receive, and better alternatives exist for almost everyone.

Here’s an uncomfortable truth: you are going to die. So is everyone you love. And when the time comes, someone will need to pay for the funeral.

For most New Zealanders, a standard funeral runs somewhere between $8,000 and $15,000, with costs varying significantly by region and the type of service chosen. A basic cremation might come in closer to $3,000, while a traditional burial with all the trimmings can push well beyond $15,000 in Auckland or Wellington. These are real numbers, and they are rising.

Funeral insurance promises to spare your family this financial burden. The pitch is compelling, especially in television and online advertising targeting older New Zealanders. But when you look behind the marketing, the numbers rarely work in the policyholder’s favour. In fact, funeral insurance has long been a fixture on our list of financial products we consider poor value. The issue is not unique to New Zealand; consumer regulators in Australia, the United Kingdom, and South Africa have raised similar concerns about funeral insurance products in their markets.

What Is Funeral Insurance?

Funeral insurance is a standalone insurance product designed to pay a lump sum to your nominated beneficiaries when you die. The payout is intended to cover funeral expenses, though beneficiaries can technically spend the money however they choose.

It is not the same as life insurance, which generally covers a much larger sum and serves broader financial protection purposes. Funeral insurance is specifically marketed to cover final send-off costs, and is sometimes labelled “Funeral Cover,” “Funeral Plan Insurance,” or simply a “Funeral Plan.”

In New Zealand, policies typically offer cover ranging from $3,000 to $30,000, with premiums paid fortnightly or monthly. Most providers do not require a medical examination, and guaranteed acceptance is common for applicants between 50 and 80. These features are presented as selling points, but they also signal something important about the product’s economics.

Why Funeral Insurance Is Almost Always Poor Value

The core problem is mathematical. Death is not a risk; it is a certainty. Every person who buys a funeral policy will eventually die. Because there is no uncertainty about whether a claim will arise, the economics work very differently from, say, health insurance or contents insurance, where most policyholders never claim.

With funeral insurance, the question is not if you will claim. It is when. And unless you die within about five years of taking out a policy, you will almost certainly pay more in premiums than your family will receive.

The evidence is well documented. A 2016 Consumer NZ study examined funeral insurance policies available to 64-year-olds seeking $10,000 of cover. It found those who lived a further 20 years would, in several cases, have paid more than double the benefit amount in premiums. In 2020, Consumer NZ published a follow-up investigation highlighting an 85-year-old woman who had paid $18,900 in premiums on a policy worth just $10,000. The insurer declined to refund the difference.

The Insurance and Financial Services Ombudsman (IFSO) Scheme has handled multiple complaints along similar lines. In one published case, a policyholder paid over $20,000 in premiums on a $20,000 policy before discovering the shortfall. In a December 2025 public statement, the IFSO urged consumers to look closely at the fine print, noting premiums can exceed the payout and early-period restrictions often catch families off guard.

The problems compound over time:

• Premiums accumulate for decades, but the payout stays fixed. A $10,000 policy pays $10,000 whether you have contributed $2,000 or $25,000.
• If you cancel or miss payments, you lose cover and receive nothing back. There is no refund of premiums after the cooling-off period (typically 30 days).
• Most policies only cover accidental death during the first 12 to 24 months. If you die of natural causes in the early period, your family may receive nothing or, at best, a refund of premiums paid.
• Cancelling can be surprisingly difficult. A December 2025 investigation by TVNZ’s Fair Go programme documented a case where a provider repeatedly telephoned an 81-year-old policyholder to persuade her to keep paying, even after family members requested cancellation on her behalf.

There is also an opportunity cost to consider. Every dollar spent on funeral insurance premiums is a dollar not earning interest in a savings account or growing in value elsewhere. Over 15 to 20 years, the difference between “money paid to an insurer” and “money saved and invested” can be striking.

Consider two people, both setting aside $25 a week from age 60. Person A directs it to funeral insurance premiums and secures $10,000 of cover. Person B puts the same amount into a savings account earning 4% interest. After 15 years, Person A has paid $19,500 in premiums for a $10,000 benefit. Person B has accumulated approximately $26,500 and can leave the lot to family. Even after paying for a $12,000 funeral, Person B’s family is roughly $14,500 ahead.

If you are concerned about an existing funeral insurance policy, our insurance advisers can review the terms and help you weigh up your options. There is no obligation.

Regulators Are Paying Attention

The funeral insurance sector has attracted sustained regulatory scrutiny. The Financial Markets Authority (FMA) and Reserve Bank’s joint conduct and culture reviews in 2018 and 2019 specifically identified funeral insurance as a problem area, with poor consumer outcomes a recurring theme.

The Conduct of Financial Institutions (CoFI) regime, which came into full effect on 31 March 2025, now requires all licensed insurers to treat consumers fairly under a formal fair conduct programme. For funeral insurance holders, this has practical implications: under CoFI, insurers must ensure their products are likely to meet the requirements and objectives of likely consumers, and must not subject consumers to unfair pressure or undue influence. If you are finding it difficult to cancel a policy or feel pressured to maintain cover, the new regime may offer you grounds to complain to the insurer’s dispute resolution scheme.

When Might Funeral Insurance Make Sense?

There is a narrow set of circumstances where funeral insurance can be appropriate. If someone has very limited financial resources, no savings, no access to family support, and no realistic prospect of building a sufficient nest egg, a funeral policy may be the only way to ensure their send-off does not fall entirely on the state or charitable organisations.

For the overwhelming majority of New Zealanders, though, the alternatives below will deliver a better outcome for less money.

Five Better Alternatives to Funeral Insurance

1. A Dedicated Savings Account

For most people, this is the simplest and most effective option. Open a savings account, ideally jointly held with a trusted family member, and contribute a manageable amount each fortnight or month.

Every dollar you put in remains yours, plus interest. If you miss contributions, the balance stays intact. If you change your mind, the money is still there. And your named co-account holder can access the funds immediately when the time comes, with none of the paperwork delays associated with insurance claims or probate.

One thing to be aware of: if a bank account is in the deceased person’s sole name, it will be frozen when the bank is notified of the death. However, New Zealand banks (including ASB, ANZ, Kiwibank, and others) will generally release funds directly to funeral directors upon receiving an invoice, even before probate is granted. A joint account avoids this issue entirely, because the surviving holder retains full access. There is no requirement to tag the account as a “funeral” account; any standard savings account will do.

2. A Prepaid Funeral Trust

The Funeral Directors Association of New Zealand (FDANZ) administers The Funeral Trust, which allows you to pre-arrange and prepay for your funeral through a participating funeral director. Your money is held in trust until it is needed, and you can pay in a lump sum or instalments. Public Trust also offers a Prepaid Funeral Trust with similar functionality.

A key advantage: contributions of up to $10,000 to a prepaid funeral trust are exempt from asset testing for the Residential Care Subsidy. For anyone approaching the age where rest home care becomes a possibility, this is a material financial planning consideration.

Prepaid funeral trusts are not insurance products. There are no health questions, no age limits, and no risk of forfeiture if you miss a payment. If the trust balance exceeds the funeral costs at the time of death, the surplus is returned to your estate. If costs have risen and the balance falls short, your family pays the difference.

3. Life Insurance with a Funeral Advance

If you hold a life insurance policy, check the terms. Most major New Zealand life insurers will advance an immediate lump sum of $10,000 to $15,000 to cover funeral expenses upon notification of a claim, with the balance paid out once the full claims process is complete.

This means many families with existing life cover already have funeral costs taken care of without needing a separate policy. It is worth confirming the specific provisions with your insurer or financial adviser.

4. Direct Payment from the Estate

Under the Administration Act 1969, New Zealand banks can release funds from a deceased person’s account to pay funeral expenses before probate or letters of administration are granted. This is standard practice. The funeral director submits an invoice, the bank releases the funds, and the family does not need to pay out of pocket.

For smaller estates (under $40,000 at any single institution, a threshold increased from $15,000 in September 2025), banks have simplified procedures requiring a statutory declaration and indemnity rather than a full grant of administration.

A clear, up-to-date will makes this process considerably smoother. If you do not yet have one, putting a will in place should be a priority. Our estate planning guide covers the key steps.

5. Government and Community Support

Several forms of government assistance exist for families who need help:

• Work and Income Funeral Grant: A means-tested grant of up to $2,616.12, available to eligible families where the deceased’s estate cannot cover funeral costs. You do not need to be receiving a benefit to apply.
• ACC Funeral Grant: If the death was caused by an accident or injury covered by ACC, a funeral grant of up to $7,990.30 is available. ACC can pay the funeral director directly.
• Veterans’ Affairs: Eligible veterans may receive a contribution toward funeral expenses. Further details are available at the Veterans’ Affairs website.
• Iwi and community organisations: Māori may be able to access tangihanga funding from their iwi organisation or Māori land trusts. Church groups, the Salvation Army, and other community organisations sometimes contribute toward funeral costs for members.

These grants will not cover the full cost of most funerals, but they can meaningfully reduce the burden for families on lower incomes.

What If You Already Have Funeral Insurance?

If you currently hold a funeral insurance policy, the first step is to find out exactly where you stand. Contact your insurer and ask: “What is the total amount of premiums I have paid to date, and what is my current sum insured?” The answer will tell you whether continuing to pay makes financial sense.

If your total premiums paid are approaching or have already exceeded the sum insured, continuing to pay is difficult to justify. Some providers offer an “Early Cash Out” option or may agree to make the policy “paid up” (no further premiums required, with a reduced benefit). It is worth asking about both.

If you are in the early years of a policy and have paid relatively little, cancelling means forfeiting everything you have contributed. You may prefer to transition to one of the alternatives above and run both arrangements for a period before cancelling the policy.

Remember: under the CoFI regime, insurers must treat you fairly throughout the life of your policy, including when you want to cancel. If you feel pressured to continue paying, or if cancellation is made unreasonably difficult, you have the right to complain through the insurer’s dispute resolution scheme.

The Bottom Line: Is Funeral Insurance Worth It?

Planning for how your funeral will be paid for is responsible and considerate. Funeral insurance, in most cases, is not the right way to do it.

The question to ask yourself is straightforward: given your age, health, savings, and existing insurance cover, which option will leave your family in the best position? For most people, the answer falls into one of three categories:

• If you have some savings capacity: a dedicated savings account or prepaid funeral trust will almost always leave your family better off than an insurance policy.
• If you already hold life insurance: check whether funeral costs are already covered through an advance payment provision. If so, a separate funeral policy is redundant.
• If you have very limited resources and no realistic prospect of saving: funeral insurance may be the only viable option, but explore government grants and community support first.

If you are deciding whether to keep, cancel, or replace an existing funeral insurance policy, or if you would like to talk through broader financial planning for the later stages of life, our advisers are happy to help. Get in touch and we’ll arrange a no-obligation conversation.

Related articles:

• Never cancel health insurance
• Do I need life insurance when I retire?
• Estate planning: 6 tips to protect your legacy
• Why you need a will in NZ