Consumer NZ has again criticised funeral insurance policies citing high premiums. Jon Duffy, Consumer NZ CEO used an example of an 85-year-old policyholder who has paid $18,900 in premiums after taking out a $10,000 funeral insurance for herself and her son in 2003. Fidelity Life denied requests to refund the additional amount paid in premiums as the policy had worked as it was designed. Jon Duffy has said that charging customers excessive amounts to cover a guaranteed event isn’t acceptable.
“Consumer NZ has taken aim at the poor value of some funeral insurance policies, highlighting a complaint it received from a customer who paid $18,900 in premiums for a policy worth only $10,000.
Consumer NZ chief executive Jon Duffy says the customer, an 85-year old woman, took the insurance out in 2003 to cover herself and her adult son, and was given cover of $5,000 for each life insured. Over the next 17 years, she paid out almost $9,000 more in premiums than the policy would ever have paid out.
The insurance was provided by Fidelity Life, which has refused to refund the additional premium and says the policy had worked “as designed.” Duffy says that since funeral insurance covers an event which is guaranteed to happen, selling funeral policies that result in customers paying thousands more than they would ever get back “doesn’t wash.””
This is a curious position - to define the value of an insurance policy solely by the payment that would come from it. For example, over the years, I have definitely paid in many thousands more in premium for car insurance than they have paid me out. It enables me to drive on the roads without fear of ruining someone else's life, or my finances, by an expensive crash. I will never receive back in claims what I have paid in premiums, but I still got - and continue to get - good value from the contract.
When asked to comment the FMA stated that funeral insurance had been identified as a product that offers customers poor value in their joint life insurer conduct and culture 2019 review.
The FMA appears to have a more nuanced view, simply citing poor value:
“In response to an enquiry by Insurance Business, the FMA noted that it had already identified funeral insurance as a product that “often provides poor value” in its 2019 review into life insurer conduct and culture, conducted alongside the Reserve Bank.
“The review considered funeral insurance to be a ‘poor value product’ and consequently had poor outcomes for customers,” it stated. “[The review] also provides an example of poor conduct involving funeral insurance.””
In part, poor value is a function of the small sums insured in these products: the administrative costs of insurance companies, especially using manual processes common for this market as many of these consumers struggle with the internet, make each policy subject to a relatively high component of administrative costs.
Consumer NZ is looking to end the sale of funeral insurance and other products that offer customers poor value.
“Consumer NZ says it will push for a law change that will prevent companies from selling funeral insurance, along with other products which offer poor value.” Click here to read more
I think that Consumer are referring to their support for new draft conduct law, which is also supported by the industry in concept. The advantage of a principles-based approach is that blunt instruments, like banning all funeral cover, can be avoided. After all, if you are 67, have several serious conditions, and no financial assets, but you wish to avoid burdening children with your final expenses, then a $75 a month will cover that financial risk, right now. There are simply not many other solutions, except save, and the cost will be borne by others should you die. Of course, if you keep paying it until you die, you may pay more than the sum insured. Life insurance is something best replaced by financial assets at some point in your life.