Purchasing heavy insurance plans, such as funeral insurance and home and auto insurance, can often seem like a wise option.
When they work out, these types of insurance plans act as a preventative measure to ensure that consumers don't face large sums of money in the event of an unexpected accident or tragedy. But with a growing market for insurance plans and increasingly fierce marketing tactics that play on common anxieties, it's important for families and individuals (especially those who are disadvantaged and low-income) to evaluate what, exactly, they are paying for.
Funeral Insurance
Funeral insurance companies tend to target disadvantaged people who already fear illness and death. The elderly and members of the Aboriginal community are particularly vulnerable targets for this type of financial exploitation. There are much better alternatives to help cover funeral costs, which are not insurance products. There is often a lack of transparency regarding the terms and content of a funeral insurance plan, making it unclear what a person's rights and entitlements actually are. Funeral insurance requires policyholders to continue to pay an annual premium until death, and these payments will likely exceed the amount actually paid for the funeral expenses. The added uncertainty surrounding the insurance process for disclosure and claims,
The disadvantages of funeral insurance include:
1. Increased premiums
Insurance premiums are not fixed, which means that over time, the amount of money paid per installment will increase. Premiums generally increase as the insured ages; this coincides with the decision maker's reduced ability to pay the higher amount. When this happens, individuals tend to cancel the policy - losing all the money they have already paid.
2. Paying more over time than the actual cost of the funeral
Depending on when the policy is purchased, the overall cost will likely end up outweighing the benefits of the policy - this is how insurance companies generate profits. If a person buys a policy at a younger age, they are required to make payments on an ongoing basis in order to qualify for a claim. Thinking long-term is crucial: will the cost of lifetime insurance be greater than the cost of a funeral? Invariably, the answer is yes.
3. Insurance benefits may be subject to approval
Not all policies take into account pre-existing medical conditions. Likewise, failure to disclose a pre-existing medical condition at the time of purchase makes a person liable for breach of disclosure obligations. Individuals who fail to notify their insurance company of a medical condition - or who are unaware that their medical condition is not covered by their policy - risk having their application denied.
Worried about funeral costs? Consider these alternatives
Paying large sums of money over time to an insurance provider, with little or no knowledge of their exact rights, is a big problem for vulnerable low-income people. However, for those who are concerned about the potential financial burden the funeral may place on their family, there are alternatives.
1. Super funds and life insurance
Most large super funds include life insurance coverage as part of their membership. Most people already pay for their life insurance through their super fund. These insurance policies are purchased in bulk by pension funds, which means that most policies are automatically accepted and premium costs are discounted. Under many retirement life insurance policies, family members may be entitled to a sum of money to cover funeral expenses when a person dies. Before purchasing funeral insurance, talk to your retirement pension provider about the provisions and benefits of life insurance.
2. Set up a bank account for funeral funds
Individuals can prepare to offset or cover potential funeral expenses by creating an online savings account, which gives them more control over how much they pay, when they pay and alleviates the stress of a penalty for missing a payment.
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