Explainer: Everything you need to know about funeral insurance, low-income insurance and financial hardship programs
Purchasing hefty insurance plans – such as funeral insurance and home and car insurance – can often seem like a sensible option.
When they work out, these kind of insurance plans act as a preventative measure to ensure consumers aren’t confronted with large sums of money in the incident of an unexpected accident or tragedy. But with a growing market for insurance plans, and increasingly ferocious marketing tactics that play upon common anxieties, it’s important for families and individuals (particularly those who are disadvantaged and low-income) to appraise what it is, exactly, they’re paying for.
Funeral insurance providers tend to target disadvantaged peoples who are already anxious about illness and death. The elderly and members of the Indigenous community are particularly vulnerable targets for this kind of financial exploitation. There are much better alternatives to help cover funeral expenses, which are not insurance products. Often there is a lack of transparency surrounding the conditions and content of a funeral insurance plan, making it unclear what one’s rights and entitlements actually are. Funeral insurance requires policy holders to continue paying an annual premium until they die, and those payments will likely exceed the amount in fact paid out for funeral costs. The additional uncertainty around insurance process for disclosure and claims, does not provide adequate comfort or certainty and the risk that the funeral insurance company may refuse to pay a claim on a technicality.
Disadvantages of funeral insurance include:
1. Increasing premiums
Insurance premiums are not fixed, meaning over time the amount of money payed per instalment will increase. Premiums generally go up as a policyholder ages; which coincides with the decreased capacity of the policymaker to pay the larger amount. When this occurs, individuals tend to cancel the policy – losing all the money they have already paid
2. Paying more over time than the actual cost of a funeral
Depending on when one purchases the policy, the overall cost will likely end up outweighing the policy’s benefit – this is how insurance companies generate profit. If an individual purchases a policy at a younger age, they are required to make payments on a continuing basis in order to be eligible to claim. Thinking long term is crucial: will the cost of insurance over a lifetime be more than that of a funeral? Invariably, the answer is yes.
3. Insurance benefits may be subject to approval
Not all policies account for pre-existing medical conditions. Similarly, failing to disclose a pre-existing medical condition at the time of purchase makes one liable for breach of disclosure obligations. Individuals who don’t notify their insurance company of a medical condition – or who aren’t aware that their medical condition isn’t covered by their policy – are at risk of having their claim denied.
Anxious about funeral costs? Consider these alternatives
Paying large amounts of money over time to an insurance provider, with little to no knowledge of their exact entitlements, is a big deal for vulnerable low-income earners. However, for those anxious about the potential financial burden a funeral may place on their family, there are alternatives.
1. Super funds and life insurance
Most major super funds include life insurance coverage as part of their membership. Most people are already paying for life insurance through their super fund. These insurance policies are bought in bulk by superannuation funds, which mean that most policies have automatic acceptance and the costs of premiums are discounted. As part of many superannuation life insurance policies, family members may be entitled to a sum of money to cover funeral expenses at a time of a person’s death. Prior to purchasing funeral insurance, speak to your superannuation provider about life insurance provisions and benefits.
2. Create a funeral fund bank account
Individuals can prepare to offset or cover potential funeral costs by setting up an online savings account - effectively giving them greater control over how much they pay, when they pay and alleviating the stressor of a penalty for missing a payment.
3. Pre-paid funerals
The ‘pre-paid funeral’ option – though it doesn’t seem it – is a more desirable alternative to ongoing funeral insurance policies. It is generally transparent (funeral service operators who don’t reveal the full cost of a funeral are in breach of the Competition and Consumer Act 2010), meaning consumers are informed of a full description of costs before paying. Consumers are only required to pay the total cost of the funeral (and no more) and can do so incrementally over time. It is advisable to shop around before purchasing, as different funeral homes offer different packages.
Low cost comprehensive car and contents insurance
Are you a low-income earner? Consider these insurance alternatives
It can be challenging to obtain access to insurance if you’re a low-income earner or reliant upon Centrelink income. However, some insurance products, such as Essential by AAI, have created insurance funds specifically for people living on low income. This insurance product is designed to improve access to comprehensive car insurance to avoid uninsured drivers being pursued for the total cost of damage arising from an accident. Essentials by AAI is created in partnership with Good Shepherd Microfinance, a not for profit organisation which provides access to low or no interest loans.
To be eligible for Essential by AAI, individuals must:
- Have a healthcare card or receive Centrelink payments
- Have a household income of $48,000
Financial hardship programs on ABC’s ‘The Checkout’
Did you know that if you are struggling to make ends meet, you may be eligible for a financial hardship program with your bank or service provider?
RLC’s Credit and Debt Solicitor, Will Dwyer, appeared on ABC’s ‘The Checkout’ to explain financial hardship programs – which all major financial institutions, telecommunications and energy providers are required to provide. Access to financial hardship programs is free and simply requires an individual verify their experience of hardship with evidence. A financial counsellor can help you to negotiate a hardship variation.