Funeral Insurance NZ

Funeral insurance is one of the most heavily advertised financial products in New Zealand, and one of the most misunderstood. The pitch is a kind one: pay a small regular premium now, and your family will not be left scrambling to pay for your funeral later. What the ads spend less time on is the arithmetic. The payout is fixed, the premiums can run for decades, and plenty of policyholders end up paying in more than the policy will ever pay out.

That does not make funeral insurance a scam, and for some people it is the right tool. But it sits alongside two simpler options, a prepaid funeral plan and plain saving, and the differences matter. For the wider picture, see our Finance, Tax & Money guides.

Quick answer

• Funeral insurance pays a fixed lump sum, usually between $3,000 and $30,000, to your family or estate when you die. They can spend it on anything.
• Acceptance is usually guaranteed for NZ residents aged 18 to 79, with no medical exam and few or no health questions.
• In the first 12 months, most policies only pay for accidental death. Die of illness in that first year and your family typically gets little or nothing.
• The big risk is time: premiums can run until age 85, 90 or beyond, so cover taken out at 60 can easily cost more than it pays out.
• A prepaid funeral plan works differently: money is held in trust, pays for the funeral, and any leftover returns to your estate. Up to $10,000 in a recognised prepaid plan is exempt from the asset test for the Residential Care Subsidy.
• Work and Income’s Funeral Grant pays up to $2,697.43 for families who cannot afford a funeral, but that does not cover the cost of most funerals.

What funeral insurance is, and how it works

Funeral insurance is a small life insurance policy with one job: paying out a modest lump sum soon after you die, so the people left behind have cash for the funeral and the other bills that arrive with a death.

You choose a sum insured when you apply. Mainstream NZ brands typically offer from about $3,000 up to $30,000. You pay a premium, weekly, fortnightly, monthly or annually, to keep the cover in force. When you die, the insurer pays the lump sum to the beneficiaries you nominated, or to your estate. Your family does not have to spend it on a funeral, and the insurer does not arrange one. Policy documents are blunt about this: the product provides money, not funeral, burial or cremation services. It is also a different product from income protection insurance, which pays a monthly income if illness or injury stops you working. Funeral insurance pays once, after death, and only a small amount.

Two features define it:

Guaranteed acceptance. If you are an NZ resident inside the eligible age range, commonly 18 to 79 when you apply, the insurer cannot turn you down. There is no medical exam, no blood test and usually no health questionnaire.

It is risk cover, not savings. Each premium buys cover for that period only. There is no balance growing in your name and no surrender value. Stop paying and the cover lapses, generally with nothing back. The Insurance and Financial Services Ombudsman (IFSO) puts it plainly: funeral cover is not a savings product, and if premiums are not paid, the cover will usually lapse.

What a funeral actually costs in New Zealand

Advertising has historically pushed funeral costs of $30,000 or more. The Funeral Directors Association of New Zealand (FDANZ), which surveyed funeral homes across the country, gives a calmer picture: a moderate funeral with around 50 people attending costs on average about $11,700 for a cremation and about $14,300 for a burial.

The money goes on the funeral director’s professional fees (arranging, paperwork, transport and care of the deceased), the casket, burial plot and digging fees or crematorium fees, body preparation such as embalming, and then a celebrant, venue hire, flowers, catering, death notices and the death certificate itself. A simple direct cremation costs far less than those averages; a large tangihanga can cost more. Most families plan around a five-figure sum, not a $30,000 one, so buy cover for the funeral you actually want.

Cover levels and waiting periods

Two details in the fine print matter more than anything in the brochure: the waiting period, and how long premiums run.

The waiting period. With the major NZ brands, only accidental death is covered in the first 12 months. Die of a heart attack, stroke or cancer in month eight and the full sum insured is not paid; your estate may get only a refund of premiums. After 12 months, death from any cause is covered, and most policies also pay early on a terminal illness diagnosis. Accidental death usually attracts a multiple of the sum insured, commonly two or three times the base amount.

How long premiums run. Some current policies stop charging at your 85th birthday and add bonus cover from that age. Older policies often ran much longer: in a case published by the IFSO, premiums were payable until the policyholder’s husband turned 90, with no option to stop or reduce them. Ask any insurer one direct question before signing: at what age do my premiums stop?

How premiums are set. Your premium is based mainly on your age when the policy starts and the amount of cover chosen. Some brands charge level premiums designed to stay the same each year, although the insurer can usually still reprice the whole book with notice; others step up with age. The Financial Markets Authority (FMA) notes that across life insurance generally, most premiums rise annually based on age or inflation, so get your policy’s pattern in writing. Funeral cover is also expensive per dollar of protection compared with term life insurance, because the insurer accepts everyone, including people in poor health, and prices for that risk.

Funeral insurance vs prepaid funerals vs saving

Three ways of solving the same problem, with very different mechanics.

	Funeral insurance	Prepaid funeral plan or trust	Saving in a dedicated account
How it works	You pay premiums for a fixed sum insured	You pay a funeral home or funeral trust, upfront or by instalments	You put money aside in your own bank account
What your family gets	The fixed lump sum, whatever you have paid in	The funeral you arranged, paid from the trust, with any surplus returned to your estate	Whatever has accumulated, plus interest
If you live a long time	You can pay in more than the payout	You pay no more than the plan cost	The balance keeps growing and stays yours
If you die soon after starting	Full cover once the waiting period passes; accidental death only in year one	The trust may hold less than the funeral costs, and your family tops up the difference	Your family gets only what you have saved so far
If you stop paying	Cover lapses and premiums are lost	Money already in trust stays in trust	Nothing is lost; the money is still yours
Flexibility	Payout can be spent on anything	Money is locked to funeral costs	Fully flexible, which also means it can be spent early
Residential Care Subsidy asset test	The policy is not an asset and has no cash value	Up to $10,000 per person in a recognised plan is exempt	Savings count as an asset like any other bank money

Insurance is the only option that can pay a large sum early, once the waiting period has passed. It is also the only one where the provider can keep more than your family receives, simply because you lived a long life.

The trap: paying in more than the policy pays out

Funeral insurance covers an event that is certain to happen, which flips the usual insurance logic. With house insurance most people never claim, so premiums stay modest relative to the payout. With funeral cover everyone claims eventually; the only question the insurer is pricing is how long you pay premiums first.

A simple illustration makes the point. These are round numbers chosen to show the mechanics, not a quote from any insurer. Say you take out $10,000 of cover at 65 and the premium is $100 a month. After eight years and four months you have paid in $10,000, the full value of the payout, and the premiums keep going. Live to 85 and you have paid $24,000 for a policy that pays your family $10,000. Die at 67 instead, after the waiting period, and your family receives $10,000 in return for $2,400 of premiums. Neither outcome is a trick: both are the product working as designed, and which one you get depends entirely on how long you live.

This is not theoretical. The joint 2019 review of life insurer conduct and culture by the FMA and the Reserve Bank identified funeral insurance as a product that often provides poor value, noting cases where total premiums paid exceeded the sum insured. In a case published by the IFSO, a woman took out $20,000 of funeral cover for her husband in 2010. By 2020 she believed she had paid more in premiums than the cover was worth. The insurer said premiums ran until he turned 90 and could not be reduced, and the policy had never warned her this could happen. After the IFSO got involved, the insurer cancelled the policy and refunded all the premiums.

Newer policies are somewhat better designed: some stop premiums at 85, some build in bonus cover, and disclosure has improved. The maths has not changed. Before buying, ask the insurer for the total you will have paid if you live to 80, 85 and 90, set against the sum insured. If those totals shock you, the product is not for you.

Who funeral insurance suits, and who it does not

It can make sense if:

• Your health means ordinary life insurance is unavailable or heavily loaded, and guaranteed acceptance is the only door open
• There is genuinely no family money for a funeral at short notice, and no realistic way to build savings in time
• You are starting late in life and want a set amount available within days of your death
• You understand the premiums may pass the payout, and accept that as the price of certainty

It is usually poor value if:

• You are in your 40s, 50s or early 60s and in reasonable health, with decades of premiums ahead of you
• You already hold life insurance, since many life policies can release an advance for funeral costs while the main claim is assessed
• You could save the sum insured within a few years, because a savings account never lapses
• Premiums might become unaffordable later, because a lapsed policy returns nothing

Benefits, asset tests and the Residential Care Subsidy

Funeral planning meets the welfare system in three places worth knowing.

Prepaid funerals and the asset test. If you later apply for the Residential Care Subsidy, Work and Income assesses your assets. Money in a recognised prepaid funeral plan is treated specially: up to $10,000 of prepaid funeral expenses per person is exempt from that assessment. Anything above $10,000 counts as an asset like anything else. Health New Zealand Te Whatu Ora gives the same figure for Work and Income recognised funeral trusts. Insurance cannot match this, because a policy is not money set aside in your name.

Funeral insurance is not an asset. A funeral policy has no surrender value and cannot be cashed in, so there is nothing for an asset test to count. The premiums are simply an expense, and the policy neither helps nor harms a subsidy application.

If there is no money at all. Work and Income’s Funeral Grant can pay up to $2,697.43 towards a funeral where the estate cannot pay and the family’s income and assets are low enough to qualify. You do not need to be receiving a benefit to apply, and the grant is not repayable. Where a death was caused by an accident, ACC can also help with funeral costs.

Making a claim

1. A family member contacts the insurer and gives the policy details. This is why the FMA advises telling your family about any life or funeral cover you hold: a policy nobody knows about is a policy nobody claims on.
2. The insurer sends a claim form and asks for supporting documents, typically a certified copy of the death certificate and identification for the person claiming.
3. Once the paperwork is complete, payment goes to the nominated beneficiaries or the estate. Some insurers state they pay most claims within one or two business days of receiving everything they need.
4. If the death fell inside the waiting period, the insurer will verify the cause of death. That is where delays and disputes arise.

If a claim is declined, complain to the insurer first. If that fails, the insurer belongs to an independent dispute resolution scheme, such as the IFSO Scheme, which investigates free of charge.

Questions to ask before you buy

• What is the waiting period, and what exactly is paid if death is from illness during it?
• At what age do premiums stop: 85, 90, 100, or never?
• Are premiums level, or do they rise with age? Can the insurer raise them for all policyholders?
• What will I have paid in total if I live to 80, 85 and 90, against the sum insured?
• What happens if I miss payments or need to cancel in five years? (The honest answer is usually: cover lapses, nothing back, apart from a refund inside the roughly 30-day cooling-off period.)
• Who is the insurer behind the brand, and are they licensed? Since 31 March 2025, insurers serving NZ consumers must hold an FMA licence and publish how they will treat customers fairly.

Common mistakes

Buying on the day an ad frightens you. This is a decades-long commitment sold in a 30-second spot, and the FDANZ warns that advertising has exaggerated funeral costs for years. Get the real cost picture first, then decide.

Over-insuring. A $25,000 policy for a $9,000 funeral means higher premiums for money your family does not need. Match the cover to the send-off you actually want.

Doubling up. Couples sometimes hold several small policies between them, each with its own premiums and waiting periods. The FMA specifically advises checking you are not already covered through another product.

Letting the policy lapse quietly. Premiums that stop, often after a move into care or a change of bank account, can end cover paid for over many years. Tell your family the policy exists, keep your details current, and review affordability every year or two.

Frequently asked questions

Is funeral insurance worth it in NZ?
For a narrow group, yes: people who cannot get other cover, cannot save, and need certainty. For most healthy people under 70, the official warnings point the other way. Over a long life the premiums commonly exceed the payout, and saving or a prepaid plan usually leaves the family better off.

What happens if I cancel my funeral insurance?
Outside the initial cooling-off period, you get nothing back and the cover simply ends. A prepaid funeral trust is different: money in the trust stays set aside for your funeral, and savings stay yours.

How much funeral cover do I need?
Work backwards from the funeral you want. FDANZ puts a moderate funeral at roughly $11,700 for a cremation and $14,300 for a burial. Cover in that range suits most people, and there is no benefit in paying premiums on more.

Can I get funeral insurance if I have health problems?
Generally, yes. Guaranteed acceptance with no medical exam is the product’s main feature, usually for NZ residents aged 18 to 79. The trade-off is the waiting period: full cover for death from illness starts only after the first 12 months.

How fast does funeral insurance pay out?
Insurers design these claims to be fast, and some state they pay within one or two business days once they have the claim form and death certificate. Delays happen when family do not know the policy exists, or the cause of death has to be verified.

Funeral insurance or a prepaid funeral: which is better?
They do different jobs. Insurance pays cash your family can use for anything, and can pay out far more than you contributed if you die soon after the waiting period. A prepaid plan locks money to the actual funeral, records your wishes, shelters up to $10,000 from the Residential Care Subsidy asset test, and returns any surplus to your estate. If settled arrangements matter most, prepaid usually wins. If flexibility matters most, insurance has the edge, at a higher likely lifetime cost.

Sources

• Funeral Directors Association of New Zealand, on what funerals actually cost and prepaid funeral planning: https://funeraldirectors.co.nz/news-and-events/news-and-advocacy/dont-let-exaggerated-funeral-costs-make-your-decisions
• Financial Markets Authority, consumer guidance on insurance, including funeral cover: https://www.fma.govt.nz/consumer/everyday-finance/insurance/
• Insurance and Financial Services Ombudsman Scheme, case study: premiums paid were more than the funeral cover was worth: https://www.ifso.nz/case-studies/funeral-insurance
• Insurance and Financial Services Ombudsman Scheme, life insurance information and tips: https://www.ifso.nz/information/life-insurance
• Ministry of Social Development, Services for Seniors (Residential Care Subsidy asset limits and the prepaid funeral exemption): https://map.workandincome.govt.nz/documents/eligibility/seniors/services-for-seniors.pdf
• Te Whatu Ora Health New Zealand, resources for older people, including prepaid funeral trusts: https://www.healthnz.govt.nz/hospitals-services/services-support/older-people/resources-to-help-you-stay-living-at-home
• Work and Income, help with bereavement costs and the Funeral Grant: https://www.workandincome.govt.nz/eligibility/urgent-costs/bereavement
• New Zealand Seniors Funeral Insurance policy document (underwritten by Pinnacle Life), cover levels, waiting period and premium terms: https://www.nzseniors.co.nz/documents/seniors-funeral-insurance-policy-document.pdf
• OneChoice Funeral Insurance, how funeral insurance works, cover range and guaranteed acceptance terms: https://www.onechoice.co.nz/funeral-insurance/how-funeral-insurance-works

This guide is general information about how funeral insurance works in New Zealand. It is not personalised financial advice, and it does not recommend any particular product or provider. Funeral costs, policy terms and government thresholds change over time, so check current figures with the insurer, funeral director or agency involved before deciding. If you need advice about your own situation, talk to a licensed financial adviser.