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We understand that, for many Australians, funeral plans offer a level of certainty and peace of mind, both emotionally and financially. But Australians thinking about taking out a funeral plan should remember that financial counsellors and consumer lawyers are often contacted by consumers struggling under the cost of funeral insurance or not fully understanding what their funeral product entails.

The fact is people rarely shop around for the funeral product that’s best for them—they simply buy the first one they come across, or what they see marketed on TV or through the media. The problem with this approach is that the term funeral plan can refer to three different types of product:

• pre-paid funerals;
• funeral bonds; and
• funeral insurance.

It means consumers may be  spending thousands of dollars without fully understanding the range of options open to them—and these options vary greatly.

This problem has also been recognised by the Australians Securities and Investment Commission (ASIC) which has recently undertaken research into funeral products and published a guide for consumers which describes each option and looks outlines the pros and cons of each.

From Consumer Action’s perspective, funeral insurance is the most problematic product. This works like any other insurance product in that you pay a regular premium and the policy pays out when the insured event occurs—in this instance, at the time of your death. But what some people overlook is that your insurance premium increases as you age, so what started out as an affordable plan becomes more and more expensive.

It is tragic that someone could pay insurance for decades but, when they reach old age and their income is lower and premium higher, they can no longer afford the policy and they receive no benefit after years of making payments.

A September 2013 segment on Channel Ten’s The Project provides a good overview of the pitfalls of funeral insurance.

This Insurance Law Service funeral insurance pamphlet provides advice for consumers considering taking out funeral insurance.

Also see: Time to end the funeral insurance rip-off: a Consumer Strategy for a fairer deal