A man in his mid-80s who paid funeral cover premiums worth more than double the $10,000 benefit has lost a dispute with his insurer over a request for a refund.

The complainant said he was told payments would end when they reached the benefit level, and he asked for cancellation of the policy and a return of all premiums, which totalled $22,886.87 at January 11 this year.

The policy was taken out in March 2006, when the policyholder was in his 60s, and the initial sum insured was $6000. The TAL policy, issued through an agent, had a stepped premium structure and the benefit sum rose annually by CPI or 5%, whichever was greater.

In 2017, at the age of 79, the man phoned to say he wanted to reduce his payments and was told there would be no more increases because of age after 80. The claimant reduced his benefit to $10,000 and turned off automatic increases to the sum insured.

The insurer denied the man was told when taking out the cover that premiums would stop when they matched the sum insured, and said it had disclosed the policy terms.

A settlement offer in March last year included reducing fortnightly premiums to $6.85 from $66.75 and paying an ex-gratia amount of $1100, which represented premiums payable up to age 90 at the $6.85 rate. The complainant rejected the offer and sought a full refund.

The Australian Financial Complaints Authority says the funeral policy operated like most other types of insurance.

“For example, if a person has car insurance for 10 years and does not have a crash, then lets the policy lapse, they will get no money back for their premiums,” it says.

“This policy works in a similar way. If the person covered under the policy had died in the earlier years of the policy, the benefit would exceed the total premiums paid. If the policyholder lives long enough, the benefit will be less than the total premiums paid.”

AFCA heard a sales phone call that was recorded when the policy was taken out and says there is no mention of premiums being capped if the sum insured is reached. The authority is not satisfied on information available that the insurer or its agent misled the complainant.

The policy document clearly says premium payments end at age 90 and, while it is called a “funeral plan”, documents show it is funeral insurance.

AFCA’s decision notes an Australian Securities and Investments Commission report in 2015 made funeral cover recommendations including that insurers provide an upfront estimate of the total cost based on ages a policyholder may live to, and clearly disclose risks that premiums may exceed the benefit.

The Hayne royal commission made criticisms of funeral insurance, while the Life Insurance Code of Practice launched in 2016 said a key fact sheet should explain whether the total premiums payable could top the benefit.

AFCA says the code applies to new policies and not legacy arrangements, while noting no annual statements sent to the complainant contained a warning on premiums potentially exceeding the benefit.

“Although ... issues with funeral insurance policies have been widely reported, the insurer does not appear to have breached the law or the policy. AFCA is a dispute resolution service and not the regulator of the financial services industry,” the decision says.

“The complainant is understandably upset that he has paid far more in premiums than the amount he is insured for. However, the complainant has not established that the insurer misled him or otherwise made an error.”

AFCA says the complainant has had the benefit of insurance cover since he took out the policy and it would not be fair to require the insurer to refund premiums. 

Click here for the ruling.