Beware of buried traps in prepaid funerals

Prepaid funerals have emerged as a popular option, giving thousands of Kiwis peace of mind about their final send-off arrangements. However, Consumer NZ warns these plans are not for everyone. They can be complicated, a lasting financial commitment and hard to get out of if you change your mind. Some people have even lost sizeable deposits when funeral homes have gone belly up. Brendan Manning reports.

HOW IT WORKS

About 7 per cent of all New Zealand funerals are now prepaid, compared to 15 per cent in Australia and 50 per cent in the United States.

To set up a plan, discuss the arrangements you want for your big farewell with a funeral director. They will calculate the cost at today's prices and this is what you pay (plus fees).

However, Consumer NZ warns the plans aren't inflation-proof.

Your money's put into a bank account and earns interest, but there's no guarantee the interest will compensate for future cost increases. If funeral prices rise faster than inflation, the amount you pay now may not cover your final bill.

The association's terms and conditions stipulate that your estate will need to meet any shortfall. But your estate is also entitled to any money left over after expenses have been met.

PROVIDERS

The Funeral Directors Association of New Zealand offers prepaid funeral plans through its members.

Some insurance companies also offer funeral cover in life insurance packages, or separately. Other insurers include Tower Funeral Trust, Trustees Executors Funeral Trust, Guardian Trust and The Public Trust.

Association executive officer Robyn Grooby says the difference between a prepaid funeral plan bought from a funeral director and insurance-type products was local knowledge. Funeral directors know local costs (flowers, casket, catering, cemetery, death notices, etc) and could provide customers with an accurate amount to put aside.

"You can potentially overpay, and also I think if you miss - like any insurance - a couple of instalments, you lose the lot."

Grooby warns that as the prepaid funeral plan market is not regulated, consumers should take advice first.

PREPAY v LUMP SUMPrepaid funerals can be arranged by buying a plan from a local funeral director, or by setting up a funeral trust. Both options give you the choice of paying a one-off payment upfront or paying monthly contributions. Most have an initial establishment cost.

HOW MUCH CAN YOU EXPECT TO PAY?

There is no "average cost" for a funeral as each one is unique, Grooby says.

A plot on Auckland's North Shore could cost $5000 plus services. Whereas, a funeral on the South Island's West Coast would be much cheaper. "We say around [on average] $8800."

FEES

The initial set-up fee typically ranges from $100 to $500. Annual maintenance fees range from zero to around $60.

WHAT OTHER OPTIONS ARE THERE?

Another option is to set up your own savings scheme with your bank. It means you still have control over your money and avoid paying funeral trust fees. Giving joint account access to a trusted family member or friend is recommended.

Grooby says using a personal bank account could be a good option for some, but problems sometimes arose when people entered rest home care as Work and Income did not exempt that money when asset testing.

WHAT HAPPENS IF YOU WANT TO CANCEL?

Once your money has been paid to a prepay funeral trust, it is very difficult to get it back.

Most trusts will repay your money if you can prove you are leaving the country permanently and some - but not all - will refund you at times of severe financial hardship.

Grooby says the association uses the same criteria as Kiwibank when determining financial hardship.