New Zealand funeral insurance products are under scrutiny from the Insurance & Financial Services Ombudsman Scheme (IFSO Scheme), which is asking insurers, advisers, and other providers to give clearer explanations of long-term costs, exclusions, and documentation requirements. “There are many aspects of funeral insurance that can catch families off guard,” said Karen Stevens, Insurance & Financial Services Ombudsman.
The scheme’s position is that funeral cover providers should state plainly that policyholders may, over time, pay more in premiums than the policy will ever pay out, particularly if they live longer than anticipated. It said this warning should appear in policy documents, on provider websites, and in marketing material so that consumers receive consistent information at each point of contact.
One provider, for example, includes the statement that “the total amount of premiums payable over the life of the policy has the potential to exceed the cover amount.” Where such wording is present and reasonably visible, the IFSO Scheme may have limited grounds to support a complaint on that issue. By contrast, where no clear warning exists, the scheme is more likely to uphold complaints in favour of consumers, as it has done in a number of funeral insurance cases.
A recent complaint involved Ann (name changed for privacy), who took out funeral insurance for her husband in 2010 with a sum insured of $20,000. By 2020, she discovered that the total premiums she had paid were already higher than the maximum benefit available under the policy. When she asked the insurer to stop or reduce premiums while keeping the cover in place, she was told this was not possible.
Ann complained to the IFSO Scheme, saying she had not been warned that premiums could exceed the sum insured. The scheme reviewed the policy and found no such warning. Following discussions between the scheme and the insurer, the insurer agreed to cancel the policy and refund all premiums paid. The IFSO Scheme notes that this outcome depended on the particular wording and facts of the case and does not set a standard remedy for similar disputes.
Stevens said funeral insurance should be regarded in the same way as other risk-based products, rather than as a way to build up funds. “Funeral insurance is a risk product, not a savings or investment plan. If you stop paying premiums, your cover lapses. As people age, the total premiums paid can often exceed the amount that would be paid out. It’s important to know that, if you live a longer life, you might end up paying more than the policy is worth,” Stevens said.
The IFSO Scheme is also highlighting complaints that arise from waiting periods and restricted cover during the first year of a policy, particularly where consumers or families assume full benefits are available from day one. In one case, Miranda bought funeral insurance for Juana (names changed for privacy), for whom she was the sole caregiver. Less than a year after the policy started, Juana died from a terminal illness. Miranda made a claim for funeral costs, but the insurer declined it. Under the terms of the policy, only accidental death was covered in the first 12 months.
“The policy only covered accidental death in the first 12 months, and the insurer had clearly applied the terms and conditions, so Miranda’s complaint was unable to be upheld,” Stevens said. For insurance professionals, the case illustrates the need to draw attention to waiting periods and early-policy restrictions, and to discuss how these sit alongside a client’s age and health at the time of application.
Another recurring issue in funeral cover disputes involves claims made on behalf of an estate without the claimant providing legal proof of entitlement to the proceeds. Lin (name changed for privacy) arranged funeral cover of $25,000 in 2012. When she died in August 2024, her daughter – Mei (name changed for privacy) – submitted a claim. The insurer requested documentation confirming that Mei was the executor of Lin’s estate before it would pay the benefit. This documentation was not provided, and the insurer did not release the funds.
Mei complained to the IFSO Scheme, but her complaint was not upheld because she had not supplied the legal evidence needed to show she was entitled to receive the benefit on behalf of the estate. According to the scheme, such disputes can be reduced if insurers and intermediaries explain at the outset, and again at claim time, what estate documentation may be required and who is legally able to receive payments.
These funeral insurance complaints are part of a wider rise in disputes across insurance and financial services. From July 1, 2024, to June 30, 2025, the IFSO Scheme accepted 600 disputes for formal investigation, a 25% increase on the previous year and more than double the 285 disputes accepted in 2022. Over the same period, the scheme received 4,293 enquiries and complaints in total.
General insurance products made up 67% of investigated disputes, including house, contents, motor, and travel insurance. Health, life, and disability insurance accounted for 29% of cases, while 4% related to credit contracts and other financial services. Within general insurance, house policies generated 24% of disputes, followed by motor vehicle insurance at 19% and travel insurance at 18%.
