Yahoo Finance How to save $33,000 on the unavoidable expense everyone must pay
Some Australians have been caught out losing tens of thousands of dollars by paying for funerals through funeral insurance rather than pre-paying.
Analysis of funeral policies from funeral service provider InvoCare has revealed that Aussies with funeral insurance stand to save $33,000 by pre-paying for funerals instead.
“A funeral could cost around $6,500, which a prepaid funeral allows customers to lock in at today’s prices,” said InvoCare’s Michael Hamilton.
Related story: Can you afford to die? Funeral costs are soaring in Australia
Related story: What happens to a funeral company when less people die?
Related story: We spoke to a funeral director about the business of death – and if you live in a city, odds are you're probably getting cremated
“Worryingly, having compared over 18 funeral insurance products from eight providers, we found that you would spend approximately $40,000 plus in dividends for the same funeral.”
He compared funerals to weddings in terms of the level of planning, care and detail required to celebrate loved ones.
“On average, ‘tying the knot’ can take many months to plan and cost around $65,000, while funerals can cost a tenth of the price ($6,500) and are normally planned in about four days,” Hamilton said.
Do you need funeral insurance?
Funeral insurance policies – which he argued were “products that don’t make sense” – deliver limited value for customers, he added.
“People buy insurance to protect themselves against relatively unlikely events and so payouts are few and far between. Conversely, funerals are a certainty and so any insurance policy has to charge the consumer more than the final cost of the funeral to be profitable, it simply can’t work,” he said.
According to Hamilton, it’s lack of awareness that sees Aussies fork out more for funerals than necessary: InvoCare research shows more than a third of people who bought funeral insurance did so because they thought it was the cheapest option while one-in-five (22 per cent) didn’t even know any other options existed.
“Prepaid services allow you to buy your funeral at today’s prices avoiding inflation, hefty premiums and complicated application and claiming processes that are often built into insurance policies,” he added.
The Financial Rights Legal Centre (FRLC) also argued that funeral insurance was a ‘rip off’, warning about expensive premiums.
“You need to think about whether you can afford funeral insurance over the next 10, 20 or more years. It is common that people with funeral insurance pay more in premiums that the insurance company pays out when they die,” FRLC said in a fact sheet published on their website.
And under some policies, funeral insurance gets more expensive as you get older.
“Also, it is important to understand that, generally speaking, if you cancel the funeral insurance your premiums are not refunded to you.
“You would be better off putting your money in the bank!”
Make your money work with Yahoo Finance’s daily newsletter. Sign up here and stay on top of the latest money, news and tech news.
