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The cost of dying: how to make funerals less costly

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Without meaning to sound ghoulish, there's good news on the funeral front.

A number of reports and comparison websites have emerged to lift the lid on the industry and help consumers navigate this costly and complex world.

It's a welcome development given that funerals are often organised when bereaved family members are still reeling from their loss, unsure of what to do and under pressure to have the body removed for burial or cremation as soon as possible.

For too long opaque pricing has made it difficult for consumers to shop around. Often the only way to get to grips with the true cost of a funeral is face to face with the funeral director, by which time the exhausted family finds it's easiest to just accept what's on offer.

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Consumer groups such as Choice want funeral homes to itemise their pricing on their websites so that consumers can research their options and compare prices beforehand and make an informed decision. This way they can avoid being lumbered with a hefty financial burden.

Funerals come with a significant price tag. A cremation costs about $6000 while a burial, including the monument and cemetery fees, can amount to close on $20,000.

A recent study entitled "It's your funeral: an investigation of death care and the funeral industry in Australia" found funeral homes inflate the pricing of individual services and products by offering them only as part of a bundled package.

"Details of the individual components of the funeral service was not often disclosed," noted the report, "Instead a 'packaged' or 'bundled' total price was generally supplied." It said this made it difficult to put together cheaper alternatives and it also stifled competition.

Packages limit choice

The report noted that a lack of national regulation provided opportunities for predatory pricing and recommended a standard product information statement be introduced with itemised pricing so people could buy only the items they wanted.

It also recommended funeral homes be required to offer a basic, or essential services, funeral. A direct committal or "no service, no attendance" option costs as little as $1500. The family can always celebrate the deceased's life with a wake at home.

Lead author Sandra van der Laan, a professor of accounting and associate dean at the University of Sydney Business School, says bundled products limit people's ability to do some things themselves and keep costs higher than they need to be.

"Funeral homes bundle the celebration of life, or the memorial ovation of life, with the disposal of the body. If you go to a funeral director those decisions are taken away because they offer one package of a bundle of products and services. You can negotiate within that a little bit but you are still having things bundled."

That's not to say that people aren't appreciative of the one-stop-shop service provided by funeral directors, says van der Laan. "But make sure you understand your choices and try not to be making decisions when someone you are close to has just died. It's what most people do and I think that's what disreputable funeral directors prey on.

"Only buy the services that you want. Don't get sucked into buying a full-service, packaged-up funeral that's got all sorts of things you don't want. You can pay twice as much for flowers or a couple of 100% more for a coffin. Find out what it is you want to do yourself."

Difficulty obtaining pricing for the report were consistent with findings of a Choice investigation last year. But help is finally at hand. The situation has been improved by the website GatheredHere.com.au, says van der Laan. "If you put in your postcode, it will give you some indicative prices of what it will cost for a funeral in your local area."

Launched earlier this year, GatheredHere is Australia's largest funeral home comparison site. But some operators in the $1 billion industry are less than enthusiastic about it and have threatened to sue.

Its founder, Colin Wong, anticipated the pushback. "What we're doing is at its core pretty disruptive to the industry. As a whole, it [the industry] basically benefits from a lack of transparency," he told The Guardian online newspaper.

Industry giant InvoCare, which owns well-known brands such as White Lady, Simplicity and Guardian, has also launched a website, TheFuneralPlanner.com.au. The company operates 270 funeral locations and 16 cemeteries and crematoria in Australia, New Zealand and Singapore. It has a 40% market share in Australia and up to 80% on the east coast.

Its website lets consumers compare InvoCare's different brands and their prices but it is not immediately obvious the site is not an independent comparison site, so users may not realise they are dealing with only the one company.

Need for trustworthy funeral information

Spokesman Fergus Kelly says the site was launched in response to consumer research that showed there was a need for online information.

"Funerals need to be planned in a very short period of time and customers were saying they wanted to be able to look up a funeral location and get a better understanding of the costs involved in planning a funeral," says Kelly.

He says the site allows for a certain amount of customisation. "If they use the site they will see the price changing if they use a different coffin or different flowers - it will automatically recalculate it for them. They will be able to see that straight away.

"If they choose some of the other elements, like catering, they need to speak to a funeral provider who can guide them as to those other costs. Our priority is to make sure it is very transparent."

Additional options can be added, ranging from limousine hire to choirs.

Kelly's advice to consumers is to look for a funeral provider that is experienced, reliable and trustworthy. "You need to know they are fully connected to the community and can turn that event around for you in a relatively short period of time."

Most people don't want to burden their family with their funeral bills and will look at different financial options. Some are better than others.

A pre-paid, pre-arranged funeral can be cost effective. "It's basically a financial product you are buying so it's heavily regulated," says van der Laan. "If you want to lock in a price in today's money for a particular set of services, that's probably the way to go if you don't want your family to worry about it."

It usually requires a deposit and regular instalments over time. The Australian Securities and Investments Commission (ASIC) says this can be a lot cheaper than a funeral bond or funeral insurance if you live another five to 10 years.

The only drawback is that some pre-paid funerals can be inflexible if you move interstate. Exclusions may also apply if you change your mind, as you may not be able to get your money back, so it's best to check the terms and conditions carefully beforehand.

ASIC says you should ask for a full description of the items and costs involved to see exactly what you are paying for. Funeral providers that don't reveal these costs are in breach of regulations.

The watchdog also suggests you shop around to compare packages.

Funeral insurance is another product on the market. However, a 2015 ASIC investigation found it was dogged by high cancellation rates and other problems, "not only with cost but the design, marketing and sales of funeral insurance".

Specifically, it was referring to policies with stepped premiums that rise as policyholders age just as their income declines, trapping people who may have paid thousands of dollars into keeping up a policy they can no longer afford.

ASIC found the number of policies cancelled in 2014 was 80% of the number of policies sold. Nearly 55% of cancellations occurred during the first year of the policy.

Pay up or lose the funeral insurance policy

Philippa Heir, a senior solicitor at the Consumer Action Law Centre, says the insurance product is typically designed to cover the cost of a funeral between $6000 and $15,000. "The premiums can increase quite quickly. You might start paying for it when you are still working at age 65 and then are still paying it when you've retired at 70 but your income is less and your premiums are more.

The problem is if you stop paying you generally lose it all."

She says some insurers have taken steps to improve their products. "Some have level premiums and also might have a cap on how much you might pay. But the cap may still be double what the payout is.

"The ASIC report of a couple years ago found that even when they are not stepped they might have what is called inflation protection, which means they will increase your premiums and your benefit quite significantly each year."

Policy exclusions also apply, says Heir.

"For the first two years you are only covered for accidental death. So if you think you are going to die in three or four years' time funeral insurance is a good idea but you have no way of knowing that."

The policy's cash payout can be spent on your funeral or left to your next of kin.

Josh Callaghan, general manager, wealth, at Canstar, says insurers get their biggest return from policy lapses. The research house recently rated policies that have level premiums and guarantee you will never pay more in premiums than the sum insured. See canstar.com.au/star-rating-reports/funeral-insurance. "The product has a fixed sum insured - it's capped at that sum insured so the policyholder will never pay more than that amount," says Callaghan.

But be careful of others that sound the same. "There's a product that has a fixed sum insured but policyholders keep paying until they reach an age cap, so you can end up paying far more than the sum insured.

"Then there are another two products that don't have caps in place. The one is where you fix the sum insured upfront but you keep paying in perpetuity. With the other you have the fixed sum insured but continue to pay premiums. Once you reach that amount, you get the excess back. Your sum insured increases by that amount."

Affordability is the key, he says. "If premiums are registering as 20% of your income, it's obviously not sustainable. There's the potential you'll stop paying and everything up to that point is a donation to the insurer. If that's going to be the case, just put the money in a bank account - it's going to be better than a lapsed funeral policy worth thousands of dollars that goes nowhere."

Finally, one of the simplest, most effective forms of finance lies with your super. Using part of your savings to cover your funeral expenses is perfectly OK.

No fuss, no frills: a David Bowie funeral

When the singer songwriter David Bowie died last year he had the ultimate no-fuss, no-frills funeral with a "direct cremation". The body is sent directly for cremation from the hospital with no attendance or ceremony. Ashes are scattered or returned to the family afterwards.

A direct committal or cremation costs about $1500 in Australia. The memorial, or celebration of life, can be held at home, at a park or on a beach afterwards. In Tasmania's north-west a community coffin club meets at the Ulverstone Community Shed to make coffins for themselves or family members for as little as $200.

Typically, the biggest cost of a funeral is the professional service fee at 39%, followed by the coffin at 31%. The funeral director relieves the bereaved from having to organise the funeral themselves within a few days.

For many people that is a big relief.

The funeral director organises the transfer of the body to a mortuary or funeral premises, provides the coffin, arranges the ceremony and committal, organises floral tributes and newspaper notices, gets the medical certificate, registers the death, arranges a viewing, organises the hearse to the ceremony and committal, and makes all the payments for costs such as clergy fees, flowers, notices, cemetery/crematoria fees and grief counselling.

Choice is important, including the option of having an affordable, basic funeral. Always ask for an itemised price list (in writing) before you meet any funeral director. Fair trading departments in most states require it.

A struggle to keep up premiums

Some funeral insurance policies will allow you to stop paying your premiums once you have reached the amount you need for your funeral. Not all policies work like this.

Alice was 58 and still working when she took out funeral insurance costing $20 a fortnight. She wanted to have funeral cover so her family did not have to worry about paying for her funeral.

But by the time she was 71, Alice's stepped premium had doubled and cost her more than $40 per fortnight. It had gone up every year as she aged and to cover inflation.

She struggled to pay the higher premium on her much lower, post-retirement income. She also knew it would continue to go up each year.

Alice added up all the premiums she had paid over the past 13 years and worked out that it had cost her more than $10,000.

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Susan has been a finance journalist for more than 30 years, beginning at the Australian Financial Review before moving to the Sydney Morning Herald. She edited a superannuation magazine, Superfunds, for the Association of Superannuation Funds of Australia, and writes regularly on superannuation and managed funds. She's also author of the best-selling book Women and Money.
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