5 questions to ask when taking out a funeral insurance policy

Everyone, at some stage, will need a funeral. But if you ask the average Kiwi if they have a plan for paying for it, the answer is likely to be no.

The Funeral Directors Association of NZ says funeral planning is as important as retirement savings, but only 5% of New Zealanders do it, compared to 8% of Australians and up to half of the population in some parts of the US.¹

New Zealand also ranks surprisingly low for a range of insurance types amongst other Western countries, indicating the ‘she’ll be right’ attitude is still widespread.² Research from the Commission for Financial Capability (CFFC) shows New Zealand ranks low for insurance cover among OECD countries, ranking 35th out of 45 countries on insurance spend at 2.5% of GDP, compared to the OECD average of 8.4%.²

But when it comes to funerals, that might just mean your loved ones come under extra stress at an already-difficult time.

1. Why do I need funeral insurance?

The average cost of a funeral in New Zealand is $8,000 to $10,000, but the cost can vary a lot depending on what kind of send-off you want.³ 

After someone has died, there are funeral-related costs that need to be paid immediately. Families can be under immense pressure if there isn’t a savings account, prepaid plan or insurance policy to cover the expenses.

The average cost of a funeral in New Zealand is $8,000 to $10,000, but the cost can vary a lot depending on what kind of send-off you want.³

2. What can funeral insurance generally cover?

With funeral insurance, a lump sum is paid out as quickly as possible after you die. This means your loved ones don’t have to worry about the funds to cover your funeral on short notice.

Funeral insurance can be used to pay for things like service venue and catering, burial plot or cremation fees, coffin, embalming, flowers, transport, celebrant or minister’s fee, newspaper notices and printing costs. It can also cover outstanding debt such as unpaid expenses like credit cards and utility bills.

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3. What are the tax benefits of funeral insurance?

Under New Zealand tax laws, you don’t pay income tax on any funeral insurance payment.⁴ What you pay for is what you get. 

4. What’s the difference between funeral insurance and prepaid funeral plans?

A prepaid funeral is when you plan and purchase your funeral in advance. It’s arranged through a funeral director and covers all the details, from the flowers to the casket. 

You can either pay for the funeral in full or pay it off in instalments over a period of time. Costs are fixed at the current price you enter the funeral plan and won’t change even if your funeral is not for many years.

With funeral insurance, you pay a regular premium in exchange for a fixed amount of cover to be paid to the beneficiaries named in your policy when you die. Unlike a prepaid funeral, you’re not paying for your funeral itself – you’re buying insurance to cover funeral and other costs at a future time.⁵

5. Does funeral insurance cover my outstanding debts when I die?

After a claim is made and approved, the money will be paid to the person or people you have nominated as your beneficiaries. As it is a lump sum, they can distribute it as they see fit. Funds can be used for direct funeral related costs as well as other costs such as paying off any outstanding debts such as credit cards or utility bills.

Having a plan to pay for your funeral makes sense, and the sooner you make a plan, the sooner it’s a weight off your mind. 

Talk to the team at New Zealand Seniors about how funeral insurance can help make your plan happen.