More than 800,000 people have been stripped of insurance funds set aside to cover their funeral costs when they die after Southern Cross pulled the pin on the benefit.

A letter was sent to all 801,000 premium customers signed up to a range of health policies on Monday, alerting them that their funeral allowance would no longer be covered in their plan.

A public hospital cash allowance and surgical procedure for sleep apnoea was also removed.

Despite the benefit cuts, that were planned to kick in on December 10, customers would not see a reduction in the amount they paid for their insurance.

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Southern Cross chief marketing officer of health insurance products Chris Watney said without these changes, the company would have had to increase premium rates by a lot more.

"We know that premium affordability is a concern for our members. And we know that members value both the day-to-day use of their insurance, and the peace of mind that comes with knowing that the 'big stuff' like cancer or other life-changing diagnoses are covered."

Chief executive of Health Funds Association of New Zealand Roger Styles said in the last decade we have seen it increasingly difficult to access public funded services so a lot of people were using their health insurances more to avoid the wait times and jump the hoops.

"Pressures also come from medical price inflation, new procedures and new drugs that weren't funded by Pharmac - these things just weren't available two decades ago.

"If something becomes available people want it and they want it tomorrow so it's about balancing that with affordability," Styles said.

Watney said funeral allowance - that was limited to $2500 - was not related to healthcare service and was generally available under life insurance policies.

"Its removal from our policies offers an opportunity to reduce overall claims cost and their impact on premiums."

While it was no longer included in Southern Cross' health care policy, it was still seen as a vital coverage.

Funeral Directors Association of New Zealand president Gary Taylor said the cost of funerals was going up.

"In Auckland the price of a burial site, and that didn't include the actual funeral, was between $5000 to $7000.

"Of course cremation was a lot cheaper between $500 to $1000 but for some that wasn't culturally sensitive."

On top of that, families were expected to foot the bill for the casket, catering, food, venue and the rest.

"I imagine it will impact a lot of people," Taylor said.