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.”
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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.”
The FMA and the Reserve Bank highlighted an instance of an insurer only remediating customers who had complained about high premiums for funeral insurance, and where the total premiums paid often exceeded the sum insured. Some insurers also commented that “some insurance is better than no insurance,” but that given some of the outcomes the products produced, the regulators said was “not always valid.”
Financial Advice New Zealand CEO Katrina Shanks says she occasionally gets enquiries about the value of funeral insurance, and says it’s vital for customers to understand the terms of their policy - and at what point their payments become greater than its total value.
“The issue is was the cost of this product fair when the premiums paid were greater than policy that could be claimed,” Shanks said.
“This is why it is fundamentally important that when you obtain insurance, you understand all the terms of the policy - including at what point your premiums would be greater than your ability to claim on the policy.”
The office of Minister for Commerce and Consumer Affairs Kris Faafoi also highlighted the findings of the FMA and Reserve Bank review, which found that funeral insurance policies were often a bad deal for customers.
It said the Financial Markets (Conduct of Institutions) Amendment Bill will require insurers and banks to treat customers fairly, and that “outdated” insurance contract law is also under review.
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.