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12-170MR How will you pay for your funeral?
ASIC today released research showing some consumers do not have a good understanding of the funeral products they are buying to help pay for their funeral.
The research found that consumers will settle with the first product they find in trying to avoid being a burden on others. They are less likely to pick the best product for their circumstances or take value for money and long term costs into account.
ASIC’s Consumer Advisory Panel (CAP) commissioned research to explore consumer awareness and understanding of three common products that consumers use to meet future funeral costs:
- prepaid funeral plans – where consumers choose and pay in advance for their funeral
- funeral bonds – investment products that help consumers save for funeral expenses, with the funds withdrawn after death to pay for the funeral
- funeral insurance – where consumers pay monthly or fortnightly premiums for a fixed amount of cover to be paid out after death.
Key findings of the research, published today in Report 292 Paying for funerals: how consumers decide to meet the costs (REP 292) include:
- Many people did not understand the overall cost of funerals.
- People were not aware of the alternative ways to meet funeral costs, such as prepaying by instalments or buying funeral bonds.
- The term ‘funeral plan’ was used to describe the three different funeral products in advertising material, making it difficult for consumers to differentiate between them.
- 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.
- People struggled to find clear information about the different types of funeral products and the features of each type.
ASIC Commissioner Peter Kell said ‘We recognise that planning for a funeral can be a difficult process. It is important for people and families to understand what they are buying and the difference between each product, so they have peace of mind and pick the best product for their financial circumstances.’
ASIC’s MoneySmart website moneysmart.gov.au has comprehensive information about funeral options, explaining the pros and cons of each.
MoneySmart encourages consumers to:
- Think about all your options – you might have super, life insurance or other benefits that can help you or your family with funeral costs.
- Set up a savings account. Use MoneySmart’s compound savings calculator to see if you can save for your own funeral rather than paying for a funeral product.
- Go to MoneySmart’s Paying for your funeralpage and read about the different products and the pros and cons of each. For example, with funeral insurance you are not saving for funeral costs but buying insurance to meet those costs at some future date.
'Premiums for funeral insurance usually increase with age.' Mr Kell said. 'If you can't keep up the payments you are likely to lose all the money you have paid towards the insurance.'
ASIC is asking people who want to plan their funeral to look at the real cost before they put their money on the line.
Susan Bell Research conducted intensive individual interviews with 25 consumers who had taken out or invested in one of the three funeral benefit products, predominantly in the last 10 years.
The Consumer Advisory Panel (CAP) was established in 1999. Its role is to advise ASIC on current consumer protection issues and give feedback on ASIC policies and activities. CAP also advises ASIC on key consumer research and education projects. The members include both representatives from consumer and investor organisations and individual members.
As part of its broader review of financial products and services advertising, ASIC is specifically monitoring funeral insurance marketing to ensure consumers are not faced with misleading or deceptive practices. Where we come across illegal behaviour, ASIC will take action.