Choosing the right insurance
It's an unpleasant subject for all, but it's an unfortunate reality that everyone has to think about what will happen when they die. By planning ahead and choosing the right type of insurance, you can make sure that you get the most out of the money you invest. We've chosen two types of insurance to look at in greater detail: funeral and life insurance.
Funeral insurance (also known as burial insurance) can provide you with financial assistance in the event of your death so that funeral costs for things such as a casket, flowers and more can be paid for, and with some insurers, the benefit paid could triple if death is as a result of an accident.
However it's important to do your homework when applying for insurance. Some reports have indicated that funeral insurance can mean that in the long run you may end up paying much more than you would outright for a funerali. According to a report conducted by Rice Warner Actuaries in 2010, you could pay up to $50,000 more than you would pay for a funerali.
An investigation into funeral insurance plans conducted by the Combined Pensioners & Superannuants Association of NSW Inc (CPSA) shows how premiums spiral with age. This indicates how the cumulative cost paid for your premium can in the end total more than your benefit entitlement or payout.
Graph 1: Funeral insurance costs from age 50 for $6,000 cover (Source: Combined Pensioners & Superannuants Association)
Looking at the graph above, when you take into account the life expectancies of Australians - 79.3 years for men and 83.9 years for women in 2011ii - the chances that a person will end up paying more for their funeral insurance cover than the actual cost of the funeral are high. For insurer A, if you start taking out funeral cover at age 50, you would have paid out the equivalent of your benefit by around 72 years of age, and if you remain alive from then on your premium rises every consecutive year, such that at age 90, you would have paid $104,000 more than your funeral insurance payout.
Taking out funeral insurance however could be great peace of mind for someone with existing medical issues. Funeral insurance, unlike other forms of insurance, does not take into account your health conditions when you apply. Premiums are calculated and adjusted solely based on your age. Most funeral insurance providers guarantee acceptance for Australian residents aged 18 to 79iii. Cover can start from as low as $1.72 per weekiv, and premiums may stop at age 90v.
If you are not eligible to apply for a more comprehensive cover, funeral insurance could be an option for you. It is always wise however to shop around to find out what works best for you.
Apart from funeral insurance, there are a number of ways to cover funeral expenses. One option to consider is life insurance.
Life insurance is a more complex application process that involves full underwriting based on a medical questionnaire on application. It takes into account factors such as your health and lifestyle, this can mean people with existing health issues may not always be eligible for full cover.
Life insurance will give you a lump-sum payment in the event of your death or if you've been diagnosed with a terminal illness where death is likely to occur within 12 months*. Importantly, this money can be used to help cover not just funeral expenses but other things including your family's education and lifestyle costs.
If you are also looking for added benefits in your life insurance, Allianz Life Plan may be for you.
Allianz offers three types of cover within their Life insurance product: life cover, critical illness cover and permanently unable to work cover. These cover options can be tailored to suit your needs and may be taken out individually or in any preferred combination.
In addition, most life insurance policies have a funeral advancement benefit, to lessen your financial burden; with Allianz's life cover up to $15,000 can be advanced for funeral expenses and can be made while your claim is being assessed.
Find out more about Life Insurance offered by Allianz, life insurance and start securing your family's financial future.
Get a life insurance quote online today from Allianz.
*Note that this may vary depending on your insurance company.
i Rice Warner Actuaries, Pre-funding funerals, September 2010, http://www.simplicityfunerals.com.au/en/Prepaying%20a%20Funeral/Prepaying%20a%20funeral/~/media/Files/Downloads/Shared/Pre-Funded%20Funeral%20Cameos%20(2).ashx
ii Australian Bureau of Statistics, Life Expectancy Trends: Australia, March 2011, http://www.abs.gov.au/AUSSTATS/abs@.nsf/Lookup/4102.0Main+Features10Mar+2011
iii Guardian Insurance, http://www.guardianinsurance.com.au/Funeral-Insurance.aspx, Australian Seniors Insurance Agency, http://www.seniors.com.au/funeral-insurance/, Real Insurance, http://www.life.realinsurance.com.au/Life-Insurance/Funeral-Expenses-Cover.aspx
iv Real Insurance, http://www.life.realinsurance.com.au/Life-Insurance/Funeral-Expenses-Cover.aspx, Aussie, http://www.aussie.com.au/insurance/funeral-insurance.htm
v Australian Seniors Insurance Agency, http://www.seniors.com.au/funeral-insurance/, Guardian Insurance, http://www.guardianinsurance.com.au/Funeral-Insurance.aspx