Funeral insurer offers premium cap
PEOPLE CHOOSING to insure the cost of their own funeral are paying too much, and for too long, says a new market entrant.
Funeral plans are mini life insurance policies designed to rapidly pay a specified sum of money, usually up to $15,000, in the event of the policyholder’s death.
They are often taken out by people who do not want to saddle their loved ones with the cost of their funeral, but over the course of a policy people can end up spending thousands more in premiums than they are covered for, particularly if they live to a ripe old age.
Greenwich Life, a small insurance company based in Albany on Auckland’s North Shore, is aiming to change that and has created a policy on which premiums will never add up to more than the sum insured.
Greenwich’s Richard Blatch said, for people who took out funeral cover at the age of 55, the plan had the potential to save thousands of dollars.
A comparison of the funeral plans on the market shows that a non-smoking man taking out a $10,000 plan at age 55 will often have paid more in premiums than the sum insured by the time he reaches 75.
By the time he reaches 85 – and many will – he could have paid $6000-$8000 more in premiums than his estate will receive at claims time.
The anger that provokes in some customers was the motivation behind the creation of the Greenwich policy, which is reinsured with giant international reinsurer Hannover Re.
‘‘When customers work out that their premiums are going to exceed the sum insured, they get upset,’’ Blatch said. ‘‘It’s because it is marketed as a funeral plan instead of life insurance. Customers seem to think that is unfair.’’
It is not, of course, as a person could die in a car crash soon after taking out a policy, and the insurer would pay up, though death by any other means in the first two years of most policies only results in a payout equal to the premiums paid at the point of death.
Blatch said once a Greenwich policyholder had paid the equivalent in premiums of the sum insured, no more premiums would be paid. The Greenwich policy is being championed by online insurance broker Des Morgan of insurance4me.co.nz, who says: ‘‘Most funeral plans in New Zealand have level premiums based on your age when you purchase and have similar terms and conditions. There can, however, be a significant difference in the long-term cost of the different plans.
‘‘Many of the funeral insurance policies available in New Zealand continue to charge premiums until you die, so unless you die within a few years of taking out the policy, it is very likely you will end up paying more in premiums than you are insured for.’’
Blatch says funeral plans are largely ignored by insurance advisers, which is a mistake.
He says advisers tend to think funerals will be paid for from the proceeds of life insurance, but as people age they have less need of cover, and as premiums rise, policies get cancelled.
In too many cases, Blatch said, that leaves loved ones scrambling to pay for the funeral.