Families forced into cremation by lack of funds
Money rather than personal choice is increasingly dictating whether people are buried or cremated by their loved ones when they die, funeral directors say.
Cremation is the less expensive option.
Funeral Directors Association chief executive Katrina Shanks said many of her association's members routinely encountered families who struggled to pull the funds together for a final send-off.
Twenty per cent of funerals are conducted with some financial help from Work and Income (Winz).
"I know of families who have had to scramble to find the money because there was none set aside, and this interrupted their grieving," she said.
"A particular example was when a man's body was left in a rest home for more than a day because his family couldn't afford to get him cremated.
"The executor couldn't afford the $1900 in fees, and signing over the body to the funeral director would have made her liable for all costs.
"Even though the executor was told there could be a Winz grant available, and that by law councils can waive burial or cremation fees for poor families, she obviously wasn't prepared to commit to being liable for the costs in the meantime."
Funerals are a topic many New Zealanders would rather not talk about, much less save for.
Cigna Life's television advertisements for its funeral insurance policies generate regular complaints to the Advertising Standards Authority from viewers who, perhaps because of their circumstances, find such advertisements inappropriate or distressing.
Shanks responded by saying people needed to realise that funerals did not need to be a sad event.
READ MORE: Families forgo funerals to cut costs.
Shanks said funeral costs varied a lot depending on the location and the style of a funeral. It was hard to provide a burial in Auckland, without any funeral service, for less than $4500. She said spending $10,000 was not uncommon.
The Funeral Directors Association is lobbying for the Work and Income funeral grant to be increased. It is a maximum of $2008, but is income and asset-tested.
Shanks said that took away a lot of choice for families. "The grant doesn't even cover the cost of a burial so you are taking the choice away from people of whether they are buried or cremated because being cremated is the less expensive option."
There are two main ways that Kiwis can put some money aside for their funerals, outside a standard savings account: Funeral insurance policies and prepaid account plans.
Funeral cover policies are offered by insurers such as Cigna Life, Countdown, Pinnacle Life, AA, State and Fidelity Life.
At Cigna, customers aged 50 to 85 can be insured for $4000 to $30,000.
Head of sales Mark Kenning said funeral cover was one of the company's most popular products, although he could not reveal customer numbers.
A female non-smoker would pay $17.54 a fortnight to be covered for $10,000 if she took out the policy at age 70.
An 80-year-old would pay $32.32. That includes a 10 per cent first-year discount on premiums, so the cost would increase the next year.
Insurance and Savings Ombudsman Karen Stevens said said she had received complaints about funeral insurance plans.
The potential benefit of the policies over saving is that you receive the same payout, regardless of what you put in, as long as you pay your premiums.
But for some people that has proved a big disadvantage.
If you live longer than you expect, you could end up paying more in premiums than you can claim. But if you stop, it cancels the policy.
"Some people found they were paying for quite some time and were guaranteed $10,000 when they died to pay for their funeral," Stevens said.
"But they lived too long and had paid $12,000 in and wanted to stop paying. Some companies said they could take a break but others said they had to keep going because it's a risk policy, you have to keep going until the event happens."
In some cases, companies had made that clear in their advertising material, she said. In others, it had not been so obvious.
"People do sometimes go in without fully appreciating what they are doing and don't read everything they are meant to read. They hear the word 'plan' rather than 'policy' and think it relates to savings," Stevens said.
In the Cigna examples above, an 80-year-old woman would pay in $10,000 in about 10 years but would have to keep paying until she died if she wanted to get that cover.
A Cigna spokeswoman said: "Some customers may pay more and some will also pay a lot less. As with any kind of insurance policy, it's possible that you can end up paying more in insurance premiums than you claim. But with Cigna Funeral Cover, the money is immediately available when you need it – regardless of if you've been paying in for two years or 10 years."
Fidelity Life would charge a 64-year-old male non-smoker $64 a month for 10 years to be covered for $12,000. That would mean he paid in $16,640 in premiums.
David Boyle, general manager of investor education at the Commission for Financial Capability, said it was important that people clearly understood the way their policies worked.
Customers could find they were not covered for the first couple of years.
Cigna has a standdown period where policy-holders are covered for accidental death straightaway but must wait 24 months to be covered for any other cause of death. If they die within that time, the family gets a refund of premiums paid.
Kenning said customers were using funeral plans for other associated expenses such as travel and paying off any small debts of the person who had died.
Another option is to take out a funeral savings plan or "prepaid funeral".
People going into a rest home are allowed $10,000 in a prepaid funeral account before it impacts on the amount of Government funding they can get for their care.
Funeral Link runs a Prepaid Funeral Trust, run by members of the Funeral Directors Association. The association itself runs the FDANZ Funeral Trust.
It offers the chance to prepay and plan a funeral at the same time. Savers can put any amount they want in, after an initial $200 plus the entry fee of $100. The minimum amount of instalments is $20 per fortnight but most pay it as a lump sum.
It is not possible to withdraw your prepayment unless you leave New Zealand permanently or in cases of extreme financial hardship.
The Public Trust also offers a vehicle to save the money for funeral expenses.
Shanks said the benefit of a plan was that it encouraged people to do some funeral planning as well as savings. "It's much more effective than a financial product you haven't had to put any thought into."
When people withdrew their KiwiSaver funds there should be an option to request information on planning for a funeral, she said. "Then they are thinking about it at the early stage of 65 rather than waiting until 80 when they are going into retirement homes."
Funeral planning was as important as retirement savings, she said. But only 5 per cent of New Zealanders did anything about it, compared to 8 per cent of Australians and up to half of people in some parts of the US.
Boyle said it was sensible to be prepared, to reduce the burden on family members in what would already be a stressful time.