Consumer NZ seeking to end the sale of funeral cover, and more daily news

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. 

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Daily news update: Partners Life discontinues funeral cover, and more stories

Partners Life announced that they will no longer be offering funeral cover to new applicants as they have found that demand for the product is minimal. Although this decision was made earlier in the year, Partners decided to prolong the announcement date to ensure COVID-19 updates did not overshadow this announcement. Customers with existing cover will continue to receive product enhancements.

“As such, we have made the decision to discontinue Partners Life Funeral Cover for new policies effective today (15th June 2020). While this change may seem sudden, we had originally intended to discontinue Funeral Cover earlier in the year, however wanted to ensure it did not get swept up in, or lost amongst COVID-19 related changes and communications.

Of course, clients with existing policies will continue to remain covered and receive product enhancements and full support from Partners Life for as long as they stay in-force, as is the case for all existing Partners Life policy holders.”

In other news:

Insurer says May, June claims levels are almost back to normal

COVID-19 has increased demand for financial advice

Alert Level 1: what have advisers learnt from lockdown?


Quality Product Research Update: V105

We have just uploaded QPRV105 onto Quotemonster and have also distributed it to all other subscribers. This version includes the following changes:

  1. Momentum Life added for Life
  2. AIA Business TPD, Trauma
  3. Accuro update to Smartcare and Smartcare+
  4. Income Protection review changes
  5. All funeral providers updated
  6. Review Funeral Cover item

Probably the most significant change is to income protection. You will note a narrowing of the range from the top to the bottom of income protection scores, due to reduction of the incidence rates for a series of secondary cover items. 


Funeral Insurance an Expensive Way to Cover Costs

Consumer NZ has warned that Funeral Insurance could be the most expensive way to pay for your final send-off. 'Consumer NZ reviewed 10 policies offering $10,000 funeral cover for a 64-year-old. The review found that by age 84 the amount paid in premiums exceeded the $10,000 cover with most policies. In some cases, the insured person would have paid twice what they were entitled to be paid out.' Read more from this article on Stuff.

We are continually surprised to find that as many as a quarter of all funeral cover clients could have easily purchased fully underwritten cover. They were simply attracted by the convenience of not having to answer health questions. 


Crowdfunding is Not a Replacement for Life Insurance

Apparently creating a fundraising page to fund funerals or support family members after someone's death is becoming increasingly popular. The average amount raised on funeral, memorial and tribute pages on fundraising site GoFundMe is $2,200 USD.

"No Life Insurance, Help Spouse" is the headline on a current GoFundMe page set up after a woman's husband died while ziplining in Costa Rica, the page has currently raised $7,495 USD. Just think how even just $50,000 of life insurance would have made a huge difference to them - and it is typically available for less than a dollar a day. 

Click here to read more about the craze of crowdfunding and how although a few thousand dollars can help out surviving family it is well short of the kind of meaningful aid that would have been provided by a life insurance policy.


Competency Issues Raised When Insuring the Elderly

Funeral cover is often the subject of complaints, and the one reported recently highlights the issue of competency among the often elderly purchasers. In this case the report was headlined "Family should know when elderly sign up for funeral insurance..." an article by Georgia Forrester from the Manawatu Standard.

The story talked about how the purchaser of the cover believed that it was a 'savings plan.' This must be the kind of case that makes people at CIGNA sigh. Personally I would have liked the reporter to tell us why they thought it was a savings plan, because nothing in the CIGNA marketing material or policy would suggest that it is. The policy document is really, really straightforward and says this, just to make sure there is no misunderstanding: 

Policy value

This Policy does not have any surrender or cash value.

You begin to wonder what else CIGNA could have done. You cannot spend a lot of time describing what a product is not - the field is simply too large, and it ends up being confusing. You cannot spend all your time trying to figure out ways your customer will misunderstand you, and clarify those, for the same reasons.

But the marketer in me reminds me that it is simply not okay to blame the customer.

As it happens there were clues to the problem in the article - although perhaps out of manners this was not tackled directly. The problem may have been one of competency. When the son of the applicant said that he felt the family should know when an elderly relative signs up for insurance this is because he must have had doubts about competence, and feel that the family could have helped.

Older people do not like to surrender their freedom, or necessarily admit when they may doubt their ability to manage. Even if it was agreed that insurers should advise family, they have no legal right to do so. The law does not cease to respect privacy simply because of age. There is another downside which must be avoided when involving family - the sad fact that some families are not the best guardians of the welfare of elderly relatives -- elder abuse occurs. 

Perhaps, if the volume of these complaints begins to look higher than the norm for other types of covers, then subtle and respectful ways to test the competence of the person applying may need to be found. 

 


Beryl's Insurance: Funeral Cover In the Spotlight

Did you miss the Fair Go item on Beryl's insurance? This covered the issue of a funeral plan that has been in force a very long time on the life of Beryl, who took out the cover when she was just 76 and is now in her nineties.

Like a lot of funeral plans the sum insured is low and the premiums are high. This was contrasted with the insurance for Andrew Hooker, a claims specialist lawyer, who described himself as a '52 year old overweight lawyer' and is paying just $70 a month for $300,000 cover.

The glaring fault in the interview was the failure to bring up these points: Beryl's cover would have been issued with no underwriting at all, and Andrew's would have been fully underwritten. Andrew's premiums will probably be rate-for-age (rise every year), whereas Beryl's did not. 

At the same time a very good point was made about advice, by Andrew Hooker, and therefore in the segment as a whole: if you speak with a financial adviser then they might have recommended some alternative solutions: 

  • If Beryl could have purchased underwritten cover then she would have qualified for more insurance
  • If Beryl could not get underwritten she may have been better off simply saving the money
  • Alternative funeral plans are on sale where the premium ceases when the accumulated cost reaches the sum insured. Others, including one now sold by Fidelity Life, which has something similar where the premium ceases at age 85.

Advisers wishing to see a comparison of funeral plans can do so by logging in Quotemonster.co.nz and visiting the research tools are of the site. 

You can view the whole segment at this link: http://tvnz.co.nz/fair-go/beryl-s-insurance-video-6330323