Funeral directors say the loss of any money put aside to help pay for a funeral would impact a lot of people and particularly those already struggling.
More than 800,000 people signed up with insurance company Southern Cross will have a $2500 funeral allowance stripped from their policy by early next month.
The changes were made so as not to increase premium rates, the company said.
Auckland funeral director Nick Bakulich, of Greyson Funeral Services, has worked in the sector for almost 30 years and said more and more people were taking out such policies in a bid to help loved ones they would one day leave behind.
"Every little bit counts. There are some shifts around being careful," he said.
"Not everyone is keeping up with the Joneses now."
The average cost of a funeral in New Zealand nowadays starts from about $4000 to the $4500 mark and includes everything from the casket, a prayer service and the death certificate.
But add flowers, a notice in the local newspaper and the burial plot - which, in Auckland, starts from about $5000 - and the cheapest funeral option available suddenly reaches about $10,000.
PEACE OF MIND:
Bakulich said funeral policies or grants were something they were seeing more of now compared to more than 20 years ago, when some people had no idea such a thing existed.
"They bring a sense of peace of mind. A lot of people [who get funeral insurance allowances or policies] are being mindful of the cost and who bears it when they're gone.
"Sometimes we've got to steer people in the right direction and say: 'You can't afford it'.''
At the Haven Falls funeral home - which has branches in West Auckland, Whāngārei and Wellington - funeral packages start from $3990 plus GST.
That package included the uplifting of the body, the casket, dressing, a death certificate, prayer service and documentation.
A funeral director based at its Henderson branch, who asked not to be named, said they often worked closely with families, many of them Pasifika and Māori, to come up with a cost that suited their circumstances.
He said a lot of people tended to underestimate the cost of a funeral and staff also helped lower-income families to apply for the funeral grant provided by Work and Income NZ - a total of $2058.52.
The president of the Funeral Directors Association of NZ, Gary Taylor, told the Herald this week that the costs of funerals were going up.
Burial plots in Auckland sometimes reached up to $7000. Cremation options were a lot cheaper - ranging from between $500 to $1000 - but was not an option for some cultures.
Speaking about Southern Cross's move to remove the funeral allowance, he said: "I imagine it will impact a lot of people.''