In exchange for a fortnightly, monthly, or annual premium, funeral insurance pays out a set amount of money (known as the ‘cover amount’ or ‘benefit amount’) when you pass away or face another mishap covered by your policy. The benefit is the amount you choose when you apply for cover (generally capped at $30,000) which is usually paid to you within 1 business day after making a claim.
Your estate or your nominated beneficiaries will get the full benefit amount for an eligible claim, regardless of how long you’ve held the policy, as long as the policy is active when the insured event occurs.
The application process is usually seamless — you may be asked a few questions about your health and lifestyle, but many providers offer guaranteed acceptance if you’re a New Zealand resident and within the eligible age bracket. Winning!
Your level of cover
In New Zealand, most providers offer cover up to $30,000. The minimum amount is usually around $3,000. The higher your cover amount, the higher your premiums will be. While funerals can be expensive, it all comes down to how much you’re willing to spend on your closing act. You might want to read up on some of the expected costs of a funeral or tangi to help you figure out a suitable cover amount.
It's also worth considering any other immediate costs your family could face when you’re gone. If you have any personal debts or are worried about legal fees poking into your estate and will, you may want to consider this when calculating your level of cover.
Premiums vs. payout – understanding what you’re paying for
Premiums can be stepped, meaning they increase each year with age, or they can be level premiums, meaning they don’t increase automatically each year. Consider which type of premium structure suits you. It’s possible with a funeral insurance policy to end up paying for more than you actually use, as your total premiums paid over the life of your policy could exceed your final benefit amount. That’s why it’s really important to balance your level of cover with the premiums you could pay over time.
Read more about how funeral insurance works.
It’s important to remember that funeral insurance isn’t a savings plan. You’re not only paying for your expected benefit amount, but also the comfort of knowing that the money will be available right when it’s needed. Plus, some providers offer extra benefits to help you fix even more of life’s dings, such as cover for an accidental serious injury or diagnosis of a terminal illness.
If you’re not sure about how much cover you could need, you should chat to a financial adviser as well as your family. And don’t forget to ask them about the final payout from funeral insurance as this is usually tax-free.