Funeral Insurance – What Consumers Need To Know

Following recent media coverage about an 81-year-old woman who paid thousands of dollars in funeral insurance premiums, more than her policy would pay out, the Insurance & Financial Services Ombudsman Scheme (IFSO Scheme) is urging consumers to look closely at the fine print.

“There are many aspects of funeral insurance that can catch families off guard,” says Karen Stevens, Insurance & Financial Services Ombudsman.

The IFSO Scheme expects insurers or the providers of funeral cover to warn consumers that they may pay more than they will get back, if they live longer than they expect to – in the policy, on the website and in any advertising material. One such provider says, for example, “the total amount of premiums payable over the life of the policy has the potential to exceed the cover amount”. If there is a warning like this, the IFSO Scheme might not be able to help. However, if there is no such warning, the IFSO Scheme is likely to uphold the complaint in favour of the consumer, as it has done in previous funeral policy complaints.

In a recent case, Ann* arranged funeral insurance for her husband in 2010, with a sum insured of $20,000. By 2020, she realised she had paid more than $20,000 in premiums, more than the policy would ever pay out. When she contacted the insurer to stop or reduce the premiums, she was told this wasn’t possible if she wanted to keep the cover.

Ann complained to the IFSO Scheme, saying she hadn’t been warned that her premiums could exceed the sum insured. The IFSO Scheme found there was no such warning in the policy, and after discussions with the insurer, the insurer agreed to cancel the policy and refund all premiums paid—a positive outcome for Ann, but not guaranteed for everyone.

“Funeral insurance is a risk product, not a savings or investment plan. If you stop paying premiums, your cover lapses. As people age, the total premiums paid can often exceed the amount that would be paid out. It’s important to know that, if you live a longer life, you might end up paying more than the policy is worth,” says Stevens.

Another detail often overlooked is that many funeral insurance policies only pay out in the first 12 months if the death is accidental.

Miranda* bought funeral insurance for Juana*, as she was Juana’s only caregiver and Juana’s family was not in contact with her. When Juana died from a terminal illness less than a year after the policy started, Miranda was shocked to discover that her claim for funeral cover was declined.

“The policy only covered accidental death in the first 12 months, and the insurer had clearly applied the terms and conditions, so Miranda’s complaint was unable to be upheld,” says Stevens.

Stevens says that another important aspect for families to be aware of is the need to provide legal proof when claiming on behalf of an estate.

Lin* arranged funeral insurance cover of $25,000 in 2012. When Lin died in August 2024, her daughter, Mei*, made a claim to the insurer. The insurer requested evidence that Mei was the executor of Lin’s estate before it could pay out the benefit. Mei’s complaint to the IFSO Scheme was not upheld, as she needed to provide the necessary legal documentation to show she was entitled to receive the benefit on behalf of the estate.

The IFSO Scheme recommends consumers carefully consider whether funeral cover is the right product for them.

“Take time to work out how much you might end up paying in premiums over time if you have a long and happy life, read your policy carefully, and ask the provider to explain any exclusions, waiting periods, or documentation requirements,” says Stevens.

If people have concerns about their funeral insurance or believe their claim has been unfairly declined, they can contact the IFSO Scheme. The IFSO Scheme resolves complaints about insurance and financial services, and is independent, fair, and free for consumers.

For more information or to make a complaint, visit www.ifso.nz or call 0800 888 202.

*Names changed for privacy.

© Scoop Media