Consumers do not understand the limitations of funeral insurance policies, according to an Australian Securities and Investments Commission (ASIC) survey on the sector.

“It is of concern that there is so little depth of understanding of the limitations of funeral insurance policies – the increasing premiums, the total amount spent, the failure-to-pay clauses, and the real cost of funerals,” the report says.

“It is possible that some people will be sufficiently prepared for the total cost over the lifetime of the policy. However, some will not be.”

ASIC engaged a researcher to look at consumer perceptions of funeral benefit products.

Apart from funeral insurance, other products investigated include bonds sold by life insurers and friendly societies and prepaid funerals offered by undertakers.

The research finds consumers don’t differentiate between the three types of products because TV advertising refers to all as “funeral plans”.

The report says TV advertising has pushed growth in the sector, and “seems to have influenced people to consider prepaying their funeral or investing in a bond”.

“The similarity of the emotional appeal across all funeral benefit products in both advertising and documentation ensures that this funeral planning concept is embedded in people’s consciousness as a ‘feel-good’ mode of behaviour.”

But the report also highlights the fact many people do not understand the true cost of funerals and that there are alternative ways of paying by using bonds or prepayment.

It says people struggle to find clear information about the different types of funeral products and the features of each type.

ASIC Commissioner Peter Kell says planning for a funeral is difficult, but people should be able to “understand what they are buying and the difference between each product, so they have peace of mind and pick the best product for their financial circumstances”.

“Premiums for funeral insurance usually increase with age,” he said. “If the consumer can’t keep up the payments they are likely to lose all the money paid towards the insurance.”

ASIC has not said if it is planning any regulatory action on some of the issues highlighted in the survey.