The funeral insurance industry has one design flaw it cannot fix: the customer who wins is the one who dies promptly. David Tyler reads the fine print.
This writer is turning 78 next month, but refuses to hear the final siren. But let’s talk death. Or rather, a business everyone is dying to get into.
You’ve seen the ads. Actors of a certain age, silver but sprightly, provident to a fault, ‘Doing The Right Thing’ by the grandkids with a few dollars a week. The soft piano. The kitchen bench. The promise that your family won’t be ‘burdened’.
The premise is sound. Funerals are expensive and getting more so. The Australian Seniors Cost of Death report puts a burial at $11,039 and a cremation at $8,045, with costs up 20% in four years and one in three over-50s who helped pay for a funeral reporting financial hardship as a result.
The government’s MoneySmart site puts the range at $4,000 for a basic cremation to $15,000 and beyond for the full mahogany.
And by the time the bill is in prospect, most of us are skint. The Australia Institute finds 22.6% of Australian retirees live in poverty, nearly double the rate of a decade ago. Almost half of older Australians rely on a government pension as their main income, rising to 78% of those over 85. A real problem, then. Which is precisely what makes the solution on offer so lucrative.
Funeral insurance certainty
Funeral insurance is the only insurance where the insured event is certain. Your house may never burn. You may never crash the Camry. But mortality is a guaranteed write-off. So the industry cannot price the if; it can only price the when, and it has designed the product so that
the house wins whichever way you exit.
Most policies run on stepped premiums that rise as you age. One comparison puts the average policy at $14.98 a week at 60, $26.33 at 70 and $59.61 at 80. The premiums climb fastest exactly when the pension is your sole income. Miss the payments and the policy is cancelled. Every dollar already paid stays with the insurer.
This is not a bug. ASIC research found 80 per cent of new policies were cancelled within a year. One financial literacy researcher put it plainly: the steep increases appear almost designed to make the consumer cancel before a claim is ever made. Live too long instead, and you lose by the other door. Commissioner Hayne found the industry paid out in claims around a third of the premiums it collected in a single year.
Consider one pensioner who bought $10,000 of cover in 2006. Eighteen years on, still inconveniently alive, he had paid almost $23,000 in premiums. The complaints authority found the insurer had done nothing wrong. That is the scandal in miniature: nothing wrong, by design. His options now are to keep paying for a $10,000 benefit he has already paid for twice, or cancel and donate the lot.
Merchants of death
The industry’s masterpiece was the Aboriginal Community Benefit Fund, latterly Youpla: a firm that draped itself in Aboriginal branding for three decades while owned and run by non-Aboriginal directors, signed up families for ‘Sorry Business’ cover, at one point deducted premiums straight from Centrelink payments, and posted a claims payout ratio of 13.9%, the lowest ASIC surveyed.
It collapsed in 2022 owing 14,500 customers an estimated $66m. Taxpayers, not the industry, funded the $97m scheme that returned victims 60 cents in the dollar. The Federal Court later fined the company $3.5m for the fake Aboriginality. The company no longer exists and the fine will never be paid.
You have to hand it to the merchants of death: they have arranged to win coming and going. The same interests that profit when you don’t insure profit when you do, and profit again when you try to sidestep the whole racket by paying in advance.
InvoCare, the ASX-listed colossus behind White Lady, Simplicity and some forty other funeral brands, holds over $560m in prepaid contract payments. The money is invested; if the investment outgrows the cost of the funeral, InvoCare keeps the surplus, which it banked at $800,000 in one year and forecast to rise, along with $1.8m in trailing commissions on its customers’ own money.
Unused items in the contract are not refunded. One family’s 1976 membership, sold as a complete funeral, was honoured after InvoCare bought the fund and rewrote the rules: as a $1,400 discount.
Here is the strangest fact of all. The regulator’s own consumer site warns that funeral insurance
can cost you a lot more than the benefit your family will receive,
and that if you stop paying you lose everything. The government tells you not to buy it. The ads run anyway, between the quiz shows, aimed at the demographic watching in the afternoon.
The better options
So what should you actually do? In descending order of good sense.
Nothing. Genuinely an option. Banks will generally pay the funeral invoice directly from the deceased’s account before probate. If there’s money in your estate, the funeral is funded. No product required.
Second, a funeral bond, if the pension assets test is the concern: capital guaranteed, exempt within limits, and the money remains yours rather than an insurer’s.
Finally, a prepaid funeral locks today’s prices and cannot lapse, but read who holds the fund and who keeps the surplus, because the odds are it’s InvoCare in a sympathetic cardigan.
But funeral insurance: never. The regulator says so in as many words.
And the quiet revolution the industry doesn’t advertise: direct cremation, $1,800 to $4,500, ashes returned, memorial where and when the family pleases. The wake at the golf club will be better attended than the crematorium chapel anyway,
and the deceased, on the available evidence, will not complain.
The best way to see your family is not incommoded by your departure is a page in the folder with the will: what you want, what it costs, where the money is. Total price of admission: nothing.
The insurers know all this. It’s why the actors in the ads are always so very reassuring. Reassurance is the product. The funeral, as the arithmetic shows, was never really the point.
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Tyler is a semi-retired teacher and political writer with an MA (Hons) in History. Writing under the nom-de-plume “Urban Wronski,” David has published over 500 articles of political commentary and analysis. His writing aims to connect institutional analysis with accessible, vernacular-rich prose that speaks to intelligent readers seeking fearless independent commentary on Australian political, social, and economic issues.