Consumer NZ says funeral insurance is “overhyped and oversold” and recommends New Zealanders set up a savings account to fund their service instead.

The not-for-profit group, which wants consumer laws changed to stop the sale of funeral and other insurance it claims have unfair terms and provide poor value, singled out a case of an 85-year-old woman who paid $18,900 for cover that was worth just $10,000 and had her request for a refund denied by Fidelity Life.

The woman took out funeral insurance in 2003, paying for herself and her son. The policy had a value of $5000 for each life insured. Over 17 years, the woman paid $8900 more in premiums than the policy would pay out for funeral costs, Consumer NZ says.

Fidelity Life offered to stop billing the woman for further premiums and make the policy “paid up” to $5225 for each life insured, but declined to refund premiums paid above this amount.

A Fidelity Life spokesman told insuranceNEWS.com.au the cover relates to a product called Funeral Plan, which is sold by Tower Insurance. It was acquired by Fidelity Life in 2013. The product is no longer sold.

“The funeral cover products sold today by a number of companies are different to older-style products like Funeral Plan,” the spokesman said.

“We believe there continues to be a need for funeral cover products, particularly for people who can’t get cover due to their health history or who simply don’t want to provide their health history.”

Fidelity says Funeral Plan was a risk-based life insurance policy much like health, car and home and contents cover.

“As with all risk-based insurance – not just life insurance - there’s no money refundable if the insured risk doesn’t occur or if the policy is cancelled before the insured risk occurs or if the amount of a claim is less than the premiums paid,” the spokesman said.

But Consumer NZ says this argument “doesn’t stack up”.

“Your home may or may not burn down, but funeral insurance covers a certain event – everyone is going to die,” a spokesman said. “There’s zero risk it won’t happen.

“Selling funeral policies that result in customers paying thousands more than the cover will ever be worth doesn’t wash with us.”

Consumer NZ is pushing for six key insurance industry changes, including making insurance subject to the Fair Trading Act’s ban on unfair terms and scrapping commissions.