FUNERAL insurance premiums tend to rise steeply for the over-50s and many people cancel their policy in the first few years, losing the benefit of premiums already paid, according to a report by the Australian Securities and Investments Commission.
ASIC found that the average premium for 80-84-year-olds was four times the average cost for 50-54-year-olds because most consumers held 'stepped' premiums which increase with age.
Even so-called 'fixed' premiums often increase (along with the benefit payable) under 'inflation protection' measures, usually 5 per cent annually.
ASIC collected data from nine insurers offering funeral insurance across some 40 brands.
Although some funeral insurers had introduced new products with improved features in the past 12 months, ASIC said many consumers were still being sold (and continued to hold) policies that exposed them to the risks identified in its report.
ASIC Deputy Chair Peter Kell said: "The high rate of cancellations points to problems not only with cost, but the design, marketing and sales of funeral insurance. It appears that many consumers do not understand important features of the product until after they have signed up".
The main reason for cancelling was cost.
More than half of consumers with funeral insurance were aged 50-74.
"ASIC has made a number of recommendations for insurers to assist consumers better understand the product they are purchasing. We also urge buyers of funeral insurance to better inform themselves about the product and ensure they have a clear understanding of the premiums to be paid long-term," Mr Kell said.
Some of the report's key recommendations for insurers are to:
- provide an upfront estimate for consumers of the total cost of the policy;
- clearly and prominently disclose where there is the possibility that the total premiums payable under a policy could exceed the benefit amount;
- do more to ensure consumers understand key features of the policy when it is sold to them (whether by phone, in person or online), especially when selling to vulnerable groups like Indigenous consumers.
ASIC has taken action in recent years on misleading advertising of funeral insurance and has produced research and information about alternative ways consumers can pay for their funeral, including superannuation, term deposits, funeral bonds and pre-paid funeral plans. Some of the pros and cons of each option are discussed on the MoneySmart website, www.moneysmart.gov.au