Funeral insurance premiums tend to rise steeply for the over-50s and many people cancel policies in the first few years, losing the benefit of premiums already paid, according to a damning report from the Australian Securities and Investments Commission (ASIC).

The regulator collected data from nine insurers offering cover through 40 brands.

It says the average premium for 80-84-year-olds is four times that for 50-54-year-olds because most consumers pay stepped premiums that increase with age.

Even so-called fixed premiums often increase under “inflation protection” measures, usually 5% annually.

Last year 80% of all policies sold were cancelled, with 55% of cancellations in the first year.

Consumers initiated 65% of cancellations – the main reason being cost – and insurers cancelled 35%, for non-payment of premiums.

More than half of people with funeral insurance are aged 50-74, but indigenous policyholders have a much younger profile, with half aged under 20.

ASIC Deputy Chairman Peter Kell says the high rate of cancellations points to problems not only with cost but also design, marketing and sales. “It appears many consumers do not understand important features of the product until after they have signed up.”

A higher proportion of indigenous consumers had their policies cancelled for non-payment of premiums, losing the value of premiums already paid.

The report recommends insurers provide an upfront estimate of the total cost of a policy.

It also calls on insurers to “clearly and prominently” disclose when there is a possibility that total premiums payable under a policy may exceed the benefit amount.

ASIC says insurers must do more to ensure consumers understand key features of policies when they are sold, especially when selling to vulnerable groups.

Although some funeral insurers have introduced products with improved features in the past year, many buyers are still exposed to the risks identified in the report, according to the regulator.

“ASIC is encouraged by steps the industry has taken in response to increased scrutiny, and urges insurers to carefully consider what additional measures they can put in place to assist their customers,” Mr Kell said.