Older Australians are at risk of being ‘guilted’ into taking out funeral insurance policies that burden them with ever-increasing premiums – in many cases, paying more than the cost of the funeral itself.
Funeral insurance is an appealing option for seniors on a fixed income, especially those who have little savings, but don’t want to burden their family with extra costs when they pass away.
But older consumers are increasingly being trapped by policies with premiums that rise as they age – or worse, by products from disreputable companies that fail to deliver.
A recent case is the ongoing issues with the now collapsed funeral insurance company Youpla, which left 15,000 First Nation policyholders without cover.
Community organisations have claimed Youpla used predatory sales tactics to market funeral insurance to the Aboriginal and Torres Strait Islander community, sparking calls for the Government to compensate those affected.
This issue is widespread across Australia.
Jennifer Langton, Head of Personal Advice at Aged Care Steps, says she’s had clients – some of them vulnerable with conditions like dementia – who have unintentionally paid more in premiums over time than the cost of the funeral.
“Some funeral insurance companies advertise really heavily on daytime TV. They use the guilt factor, saying, ‘Don’t leave your family with expenses for your funeral’. A lot of people buy into these products with all the best of intentions, thinking they’re doing the right thing for their family,” explained Ms Langton to HelloCare.
You should also be aware that funeral insurance isn’t your only option when planning ahead.
For seniors who want to pre-pay for their funeral, knowing what options are available and the pitfalls to look out for is crucial to avoiding financial exploitation.
Aside from pre-paying a funeral home or setting aside funds in a bank account, the two main products on the market are funeral insurance and funeral bonds.
Funeral insurance charges monthly or fortnightly premiums for a fixed amount of cover that on death, gives families a lump sum payment for funeral expenses.
While there are some benefits, such as immediate cover for those who don’t have large sums of money to put aside for a funeral, there are pitfalls to watch out for.
Depending on the policy, premiums can increase over time and burden seniors with high costs at a time when their income is fixed or falling.
An ASIC report from 2015 found the average premium for 80 to 84-year-olds was four times the premium for 50 to 54-year-olds. It also found 80% of consumers cancelled their policies due to the cost, causing them to lose the value of the premiums paid to date.
Alternatively, a funeral bond is an investment that allows people to set aside money for funeral costs.
Consumers pay a deposit into an independently managed fund, usually a life insurance company, and then make regular payments over time. The money grows in value with interest, and can only be used for your funeral.
Ms Langton says one of the benefits of funeral bonds is that they aren’t counted as an assessable asset for people receiving payments from Services Australia, such as the Age Pension, and they are non-assessable for aged care.
“If you’re a part pensioner and you want to reduce your assessable assets and income [to improve your payment], you may get some benefit by putting money in a funeral bond,” explained Ms Langton.
“But you need to be careful not to invest over the limit. As of [last year], the allowable limit is $13,500. If you invest more than that, you’re going to lose the benefit [of reducing your assessable assets] because you’ve breached the threshold.”
Ultimately, the key to protecting yourself from over-priced funeral products is being informed.
Ms Langton recommends seniors do their research, starting with independent sources of information such as ASIC’s moneysmart website, or talking to Services Australia’s Financial Information Service about any impact on your Age Pension before proceeding with a funeral bond investment.
“Be confident that what you’ve signed up for will suit your needs, and that you’ve made an informed decision.”
For those concerned for their loved ones, it’s important to have a conversation as a family.
“If you have older family members, sit down, get the family together and discuss this sort of thing. It can be part of a wider conversation about having Wills, Powers of Attorney and Guardianships in place, and your parent’s future care needs – whatever their preferences are,” Ms Langton added.