Funeral insurance options for everybody in the World

We get that it's not the cheeriest topic on the block, but covering the cost of your departure from the earth is worth some research.
Like the name suggests, funeral insurance is designed to cover the cost of your funeral. Sounds easy enough, but we found:

• you can end up paying more in premiums than the value of the funeral cover
• pre-paid funerals, funeral bonds and life insurance are better options.

According to actuaries Rice Warner, taking out funeral insurance at age 65 could mean your premiums almost add up to the costs of four funerals if you live until 91.

So what are all the options?

Funeral insurance

If you go down this route you'll usually make a regular contribution until age 90, after which time cover continues for free. The benefit amount is either fixed or increases over time, and you're usually only covered for accidental death for the first couple of years. An age limit of between 18 and 79 years normally applies – the older you are, the higher the premium.

Risky business

• Premiums can be fixed or increase each year, and can vary according to your gender and whether or not you smoke.
• If premiums are not fixed you often won't know how much they increase in subsequent years.
• If you stop paying your premium, you'll no longer be covered and in most cases won't receive a refund.
• Premiums can add up to more than four times the cost of a funeral.

Call for reforms to funeral insurance

In 2013, CHOICE joined 10 other consumer and pensioner advocacy groups, including the Consumer Action Law Centre (CALC), in calling for reforms to funeral insurance in Australia. 
In response to this, Hollard Insurance has released their "Guaranteed Funeral Insurance" product, which promises that:

• premiums will never increase
• premiums will actually reduce by five per cent after every continuous five years of the policy
• the total premiums paid will never be more than the benefit paid – that is, they will pay the higher of the benefit amount or the total premiums paid since product was taken out.

"It's positive that there's now a funeral insurance product with improved terms", says Matt Levey, CHOICE Director, Campaigns & Communications. "But our advice is still that consumers look at options that can be more affordable and can give them better value for their money such as life insurance, pre-paid funerals or simply using a separate savings account."

Pre-paid funerals

The pre-paid option's a better choice, and covers all or part of your funeral, usually at today's prices. The services you pay for are covered when you die, regardless of how much they cost at the time.
There are a few ways to fund pre-paid funerals.

• Small contributory funds: You make small, regular payments for part or all of a funeral service with a particular funeral director. Conditions vary between funds.
• Pre-purchased products: You pay for a cemetery plot, wall niche or place in a memorial garden, usually directly from the cemetery or crematorium.
• Pre-paid funeral plans: You choose the type of funeral you like and pay for it in full. Or make a deposit and pay installments over a fixed period. Few plans offer a refund if you cancel – check this before committing.

Funeral bonds

Funeral bonds are usually offered by friendly societies or life insurance companies, and require you to make a lump-sum payment or pay by installments. The money is invested and can only be used to cover your funeral. The funeral bond can be in your name or joint names. If you go for the latter, the benefit is normally paid on the death of the first joint owner.

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Do you need another Income protection insurance policy?

Income protection insurance is a type of life insurance that provides an income if you're unable to work. It's often overlooked, because being out of work is not the cheeriest thing to think about. The insurance payment kicks in after a certain period and covers a portion of your income. And, like many things in life, it's not as simple as it sounds.

There are two main types:

Agreed-value insurance, the most expensive option pays out a benefit agreed to reflect your income at the start of the policy. This type's not affected by any fluctuations in income - kind of like 'agreed value' car insurance cover, rather than market value.

Indemnity value policies are cheaper and more common. These verify your income at the time of making a claim and may adjust your benefit accordingly. So your payout salary can depend on things like maternity leave, working part time or becoming unemployed.

Indemnity value policies provided by super funds are the cheapest, with fewer features and less flexibility. They may also be limited to a shorter time period.

How long does it last?

This depends on how much you want to cough up for better contract terms. The more you pay for the insurance, the longer they'll pay you in the case of illness or injury. Policy terms range widely, from two to five years, or up to age 60 or 65.

Do I need income insurance?

It depends. Income protection policies are designed to meet the costs of 'living', rather than ensuring family members receive a payout after your death. If you're young and single with no dependents and limited fixed expenses, income insurance is useful. If you're a family type who needs to look after loved ones, life insurance may be a better bet.

So how much cover do I need?

Here you'll need to do some homework. Income protection covers roughly 75% of your income if you're sick, injured or unable to work. To get the best cover you'll need to budget your standard costs - like monthly mortgage or car loan payments – along with any dependents you want to provide for, plus the cost of managing any investment assets. This will help you decide what level of cover you need.

How much will it cost me?

Shop around and compare cover and prices - they differ greatly. Premiums are set depending on:

• age (premiums may increase or cover may decrease as you get older)
• gender
• health and pre-existing conditions
• whether or not you smoke
• occupation (for example, a manual laborer pays different premiums to an office worker)
• the time you choose to wait before receiving payment

Stepped or level income protection insurance premium… say what!?

The fun doesn't end there. Now we'll talk about different types of premiums.

• A stepped premium starts out cheaper, but increases over time.
• Level premiums are constant but vary depending on age at entry. They start out more expensive, but after 10 to 12 years of cover they're the cheaper option.
• If you plan on sticking with the same provider, a level premium is better in the long term.
• If you like to shop around, a stepped premium is wiser.

The tips and traps of income protection insurance

This isn't an exhaustive list. Before committing to a policy you should compare product disclosure statements. You might also consider getting professional financial advice.

• When taking out a policy, ask these key questions: What's covered? What's not covered? How much will I be paid after a claim? What will the insurance premiums cost now and later?
• Consider getting a policy with index-linked premiums and cover so you know it will keep up with inflation.
• Consider a non-cancellable policy, otherwise companies may reassess your health or other factors on each renewal, possibly raising your premiums or refusing to continue cover.
• Look for a policy with Guaranteed Future Insurability, a benefit that allows you to increase your level of cover without further underwriting. This is important if your circumstances change due to things like buying a home or having a child.
• Offset clauses allow insurers to reduce payouts if you have other income (for example, sick pay or Centrelink benefits). Check the relevant section of the policy for details.
• With group insurance provided through super: the agreement is between the fund trustee and insurer. This may make the claim and payout less straightforward. Check the waiting period (how long before you receive payment, often 30 or 90 days) and the benefit period (for how long payments will be made — typically two years or sometimes until your normally expected retirement age).
• Some policies pay out if you're unable to perform your normal occupation. Others only pay if you can't perform any occupation for which you're suited by education, training or experience. Look out for policies that pay if you're unable to perform your regular occupation.

Watch those terms

When taking out any insurance policy, you should check carefully the terms and conditions. You should also check the way the key terms of the policy are defined.

Nick, a farmer from Gloucester, found this out the hard way:

Nick had an income insurance policy with a large insurer. The policy was fine, but Nick had a not-so-typical income situation, because the money he made varied depending upon the success of the farm each year.

When Nick had an incident, the company refused his claim because they had defined his assessable income as being based on his taxable income. Sadly for the year in question, Nick had no taxable income. Instead, his income that year came from a legitimate repayment of money he'd lent to the family company in previous years.

Nick had seen no mention of 'taxable income' being the basis of assessing the insured's income. Luckily he was able to use an independent claims assessor to help negotiate with the insurer and eventually reach a compromise.

• Our tip: It's important to read all the terms to make sure you're not caught out at a tough time.

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