Premiums refunded after funeral cover exceeds sum insured
A husband and wife have had $20,000 of funeral cover premiums refunded after making a complaint to the Insurance & Financial Services Ombudsman Scheme (IFSO).
Wednesday, December 1st 2021, 2:14PM
by Matthew Martin
In May 2010, June (names changed due to privacy concerns) arranged funeral insurance cover for her husband Michael for a sum of $20,000.
In 2020, June contacted the insurer (insurer not named), because she believed she had paid more in premiums than the sum insured and asked to stop or reduce the premiums.
The insurer told June that, as it was a risk-based policy, the premiums were payable until her husband turned 90, and there were no options to stop or reduce the premiums.
June made a complaint to the IFSO Scheme saying she was not told that her premiums could exceed the sum insured.
However, there was nothing in the policy, or the archived web information, to warn June and Michael of the risk.
According to the IFSO case manager, funeral insurance is a risk-based policy which means the insurer takes the risk of paying a claim before the premiums paid equal the sum insured, whereas the insured bears the opposite risk.
"Because funeral insurance can have comparatively low sums insured, the risk of premiums overtaking the sum insured increases as an insured age.
"For this reason, the IFSO Scheme has long-held concerns about funeral insurance and expects to see the risk notified to the consumer," the case manager said.
The case manager discussed this issue with the insurer, which offered to cancel the policy and refund all the premiums paid in settlement of the complaint and the couple agreed to the offer.
The case manager said consumers need to understand that, sometimes, they will pay more in premiums for funeral cover than the cover is worth.
This often happens when funeral cover is held for a long time. It is not a savings product and, if premiums are not paid, the cover will usually lapse.
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