Pre-paid funerals - Frequently Asked Questions
Disclaimer. There are quite a few
pre-paid funeral products available in New Zealand. The details
vary from one to another so providing exact information on each one
is not possible in this broad overview. Before you purchase any
product we recommend you consider and examine more than one option
and even obtain advice from independent advisors like lawyers or
accountants. The providers of this overview cannot be held
responsible for outcomes following the purchase of any pre-paid
1. What is the difference between
pre-paid and pre-arranged funerals?
A pre-arranged funeral is where
funeral and service details are decided now, in discussion with a
funeral director, and used at a later date.
A pre-paid funeral is a financial
arrangement whereby the agreed services are paid for now and
provided at a later date.
While these are two separate actions they can
usefully be considered together - please refer to question 5.
2. Why do people pre-pay their
People have two major reasons for
Most of us plan
for nearly every financial eventuality we may face throughout our
lives - buying a house and car, having a family, retirement and so
on. Our death is another event but one which is sad and stressful
for our family to deal with. By pre-paying our funeral we can
relieve our family of that particular worry.
Another reason for pre-paying is if the need arises for long-term
residential care in a rest home or hospital. In those circumstances
a person wishing to receive Government funding (the Residential
Care Subsidy) is required to have a financial means
assessment. The value of any pre-paid funeral of the person, or
their spouse, up to a maximum value of $10,000 is exempted from the
means assessment. Please note: only the amount you have
contributed up to the day you are assessed is exempt.
(Contact Work and Income for more
3. How do pre-paid funerals work?
Most pre-paid funerals are basically
life insurance policies but with a different name. There are many
providers but they work in one of two ways: some require payments
each month for the duration of the policy; others are paid up
within a short time of starting the policy usually about two years)
by lump sum amounts. (See question 9 - "What happens to my
The cover value of the plan or policy is
decided by you but typically it could range from $4000 up to
$10,000. See question 5 for more information.
In the event of death the cover value of
the policy (or in some instances, depending on the policy
conditions, the paid up value at the time of death) is paid out
towards to cost of the funeral.
4. Which type of plan is
The only way to ensure you get the plan that
suits you best is to shop around. When you do evaluate your various
choices however, make sure you understand the fine print details in
the policy documents as some may have drawbacks. For
- Missing payments can result in some policies being
- Cancelled policies, for whatever reasons, can result in
all payments being forfeited.*
- With some policies you can end up paying instalments
which total much more than the actual cover value of the
- Check that your pre-paid funeral plan is with a reputable
- Some policies have a two year stand down period,
following the start of the policy, for pre-existing medical
* Statistics show that due to unforeseen changed
financial circumstances and therefore affordability, there is a
30%+ attrition rate on monthly instalment policies.
5. How do I decide the value of the
pre-paid funeral plan?
This depends on what type of funeral
you wish for and also where you live. For example: choosing
cremation will cost less than a burial; a burial plot in some areas
can cost $5000 while in other areas it can be less than $1000.
These are just two of many possible variables.
To be really useful the cover value of a
pre-paid funeral plan needs to be reasonably accurate. So getting
an estimate makes a lot of sense which means deciding first on what
you wish for your funeral.
Assembling your thoughts is made easier by
talking with a funeral
director. They will help you with decisions on the service,
burial or cremation, the casket and catering and other cost
influencing matters. They will help further by organising your
ideas into a plan and supplying an estimate. Then you will know how
much pre-payment to allow for rather than taking a guess.
6. What if the cost
of funerals goes up before I die?
Some policies are inflation adjustable - you
can arrange to increase the policy value and the instalments.
Others, such as some lump sum plans, accumulate interest which
contributes towards cost inflation.
If the value of the policy at time of death is
less than the funeral costs then the balance is usually paid by the
7. Can I pay too much?
With some policies you can end up paying
instalments which total much more than the actual cover value of
Fortunately there are also plans which provide
for paying surplus funds to the deceased's estate when the pre-paid
value exceeds the funeral expenses.
8. What happens if I move to another
Generally pre-paid policies and plans that
are held with reputable and established insurance companies are
payable where ever you live in New Zealand. Policy fine print will
If you move overseas to live then your policy
is unlikely to remain valid for burial outside of New Zealand. If
migration is a possibility then ensure this point is checked when
you evaluate various options.
9. Who looks after my payments?
What happens to your payments should be declared in
the information about every policy or plan. If this isn't shown or
you are not sure then it is best to consider other policy
Most pre-paid funeral policies are underwritten
by insurance companies, and they hold the payments. While no
guarantees can be given, such companies are generally reliable. In
some instances pre-payments are held in trusts. For your own peace
of mind seeking advice from independent advisors such as lawyers or
accountants may be worthwhile.
10. Is a pre-paid policy immediately
Usually policies, particularly monthly instalment
policies, have a two year stand-down period for pre-existing health
conditions and for suicide. Fully paid up lump sum plans are
usually immediately effective.
11. Do all of my payments go towards my
As with all insurance policies commissions,
management and administration costs are deducted from payments. The
policy documentation should explain all deduction details. However
policies can also attract income from interest which helps offset
such costs. That income adds further worth particularly when the
policy has accumulated a reasonable paid value, such as with lump
For information on the FDANZ
Funeral Trust (the only pre-paid funeral plan endorsed by the
Funeral Directors Association of New Zealand) click on this