Matt Walsh, head of Lifeplan Funds Management, says that a report released yesterday by ASIC into funeral costs provides welcome information for consumers on the pitfalls of certain funeral prepayment schemes currently being promoted.
The report, Paying for funerals: How consumers decide to meet the costs, was undertaken by ASIC to better understand what research people undertake when deciding to prepay their funeral costs and their level of knowledge about the different options available.
Mr Walsh said he was pleased that the report highlighted particular issues around people’s understanding of funeral insurance.
“We’re currently seeing a high level of advertising and promotion for funeral insurance which is of great concern because such insurance is usually not the best choice for consumers.
“Indeed funeral insurance can be the most expensive option for people looking to manage their own funeral costs, rather than leave this to their families when they die.
“It is encouraging to see this research from ASIC at it supports what we have been saying for many years.
“Funeral bonds and prepaid funeral plans are simple products and, in most cases, more cost-effective than funeral insurance.
“A funeral bond can be purchased directly from a friendly society, or via most financial planners, while a prepaid funeral plan can be set up with a funeral director. In most cases, this is the easiest and least expensive way of covering the cost of a funeral.
“Unfortunately, some of the advertising for funeral insurance is very confusing as it refers to ‘funeral plans’.
“We have found that many customers who come to us about our funeral bond product, or who have spoken to a funeral director about a prepaid plan, are confused about funeral insurance and how it works and don’t realise that, in order to get the benefit, they are locked into payments for the rest of their lives, usually with premiums increasing as they get older.
“The premiums can end up costing more than a funeral does, while with a prepaid plan, people can simply stop paying once they have saved enough money to cover for their funeral, without losing the benefit.
“As a result, for most people most of the time – even those who have already started paying funeral insurance premiums - a prepaid funeral plan or funeral bond can be a better option.
“We encourage people to do as much research as possible, and get help from a professional adviser where possible,” Mr Walsh said.
ASIC’s research found that “Many people did not understand some of the key features of funeral insurance: increasing premiums, total cost when compared to the real cost of a funeral, and what will happen if they miss payments.”
Copies of the report are available at www.asic.gov.au/asic/asic.nsf/byheadline/Reports?openDocument#rep292