Funeral insurance for your parents: What you should know
You know you’ve grown up when you start buying more things for your parents than they buy for you. And you can be absolutely sure that you’ve grown up when one of those things you’re considering buying for them is funeral insurance.
Naturally, it can be a sensitive topic.
Understanding the value of funeral insurance
They say there are two sure things in life – death and taxes. While a great accountant might be able to help you minimise the latter, there truly is no avoiding the former, or some form of a funeral that will follow shortly after.
That’s part of what makes funeral insurance a helpful option for some people, because it’s something that is sure to happen eventually.
Plus, when the average cost of a moderate funeral is around $10,000 in New Zealand, that means it’s also not a particularly cheap inevitable event.
Therefore, some people will purchase funeral insurance, which is designed to help cover the costs of a funeral.
Why consider funeral insurance for your parents?
Naturally, the financial assistance that a funeral insurance policy can provide would be a huge help for families that don’t have $10,000 (or more) to pay for a funeral. Of course, someone’s passing can also often be sudden, which leaves very minimal time to figure out how to make such a large payment.
Plus, with possibly two parents to consider, there may be two funerals to pay for within a relatively short time frame. If they don’t have savings to cover these expenses, or if they would prefer for those savings to go to you, you may need to think about how you might pay for one (or two) funerals.
It should go without saying that dealing with financial stress is the last thing you’d need when you’re already grieving and simply trying to make it through each day during one of the toughest times of your life. As such, funeral insurance can help to ease that burden at a time when you need as much support as you can get.
Can you take out funeral insurance for your parents?
The short answer is yes, you can take out funeral insurance for your parents.
However, there can be a stipulation. For instance, some policies may require that you have an Enduring Power of Attorney, or you have their consent and give them the chance to learn about it and ask any questions they may have. An Enduring Power of Attorney (or EPA) can be used for longer term protection and may not stop when legal capacity is lost.
Discussing a funeral with your family can feel difficult, but having these conversations ahead of time can make things a lot easier down the road.
Key Considerations before taking out funeral insurance
If you’re thinking of taking out funeral insurance for your parents, you’ll need to consider and be aware of a number of factors.
Desired benefit amount
A consideration may be how much of a benefit you would need.
Modern funeral insurance policies usually let you determine what level of cover suits you best, within a certain range. For example, some policies are for just a few thousand dollars, whereas others will cover you for tens of thousands (which could cover quite a lavish final farewell).
Naturally, the higher the cover, the more you can expect to pay in premiums. So, you may need to consider what kind of funeral they would want, how much it might cost, and your budget for premium payments.
What authority do children have on their parent's insurance policy?
Generally speaking, you will only have authority over your parent’s insurance policy if you have the appropriate legal grounds, which as an example, may be through an Enduring Power of Attorney. This can allow you to make decisions on their behalf.
However, if you have set up the policy yourself (with their consent) and are paying for it, that may make you the policy owner. In that case, you may be able to make updates to the policy.
Otherwise, if your parents have set up their own funeral insurance policy, you might only become involved if you are named as the legal representative in the policy who can make the claim, and/or if you are a beneficiary named in the policy.
If you’re unsure what kind of authority you have, speak to your parents and the insurance provider for details specific to your situation.
Things you can and can't do on the policy
You will need to refer to your funeral insurance policy document to see what actions you can take on the policy.
One option you may have, depending on the provider, is an early cash-out option. This might be available after the insured person’s milestone birthday, and allows you to take out a percentage of the policy early, even if they haven’t passed away. There are terms, conditions and risks that apply to benefits such as these, and it is important to go over the appropriate Policy Documents to see what options you have available. For instance, utilising the early cash out option may leave the claimant with less money than what has been paid in premiums toward the policy.
However, keep in mind that if you end a policy, you might struggle to replace it with a new one. Some insurance providers don’t offer funeral insurance for Kiwis over a certain age (usually around the age of 80), so if they have surpassed that age, you might not be able to set up another policy for them.
Your insurance provider may also allow you to make changes to the policy itself. For example, you may be able to raise or lower the benefit amount, should your circumstances change.
Another thing to note is that depending on your level of authority on the policy, you may not be able to nominate or change beneficiaries. This is generally something the policyowner would need to do themselves. Again, read your policy document or give your provider a call to find out the rules and guidelines around changes like this.
Things to consider if taking out funeral insurance for your parents
These are some things you may consider if you were to take out funeral insurance for your parents:
● Speak to a legal professional and get their consent or Power of Attorney as needed
● Research funeral insurance policies, as they do differ across providers
● Determine how much cover you would need
● Request a quote from your chosen provider (or quotes from different providers)
● Move ahead with your chosen quote (you will receive instructions from the provider)
● Keep a clear record of your policy
● Update the policy as needed over time
Planning for the future is never easy, but funeral insurance for your parents can provide peace of mind. Consider NZ Seniors Funeral Insurance which could help assist your family financially during this difficult time.
The information provided in this article is general information and shouldn't be relied upon as legal advice or as a substitute for legal advice. If you have legal or financial questions you should contact an appropriate professional.
18 Sep 2024