Tuesday, May 17, 2022

Funeral directors issue insurance warning following company collapse

The Australian Funeral Directors Association (AFDA) is warning the public to choose prepaid funerals and funeral bonds over funeral insurance following community calls for those impacted by funeral insurance provider Youpla’s collapse to receive compensation.

Over 125 organisations have penned an open letter urging the Federal Government to support the thousands of Indigenous Australians who paid Youpla Group for funeral insurance only to lose their investment when the company went into liquidation in March.

“This is a tragic situation that demonstrates the major risks associated with the funeral insurance industry,” said AFDA President, Adrian Barrett.

“We implore consumers to avoid paying for funeral insurance, which can leave them out of pocket and without cover if funds collapse, and to instead choose the safer options of a prepaid funeral or funeral bond.”

Purchasing funeral insurance involves a consumer paying premiums over their lifetime, with a benefit amount payable upon the death of the person who is covered by the policy.

The structure of this product means that consumers must continue paying premiums to maintain funeral insurance cover otherwise the policy is cancelled, and the payments lost.

Consumers can potentially pay more in premiums than they will receive in funeral cover if they maintain a policy for long enough as funeral insurance premiums are often stepped, meaning they increase with age and time.

The Australian Funeral Directors Association recommends that consumers opt for prepaid funerals or funeral bonds instead of funeral insurance as they are better regulated and safer for consumers.

“Prepaid funerals and funeral bonds are a proven and effective way for consumers to essentially set aside money for funerals,” said Mr Barrett.

“Comprehensive consumer protection regimes and state legislation ensure prepaid funerals and funeral bonds are well-regulated, providing peace of mind and protection to Australians across the country.”

For a prepaid funeral, consumers enter into a direct contract with a funeral director where both parties agree upon the services provided and the prepayment for the service.

Prepaid funerals can lead to considerable savings, as the cost of the funeral is set to the price of a funeral at the time the contract is signed.

Funeral bonds work similarly to prepaid funerals in that money is placed in a specified fund, but they differ in that the money increases with time and any bonus or credit is added to the bond.

The amount paid into a prepaid funeral or funeral bond by a consumer does not count as part of that person’s assets, and bonus payments or interest do not form part of income for social security purposes such as pension entitlements.

The Australian Funeral Directors Association is the national peak industry body with members in every State and Territory representing approximately 65% of all funerals in Australia.

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