A group of intermediaries is calling for traditional life offices to do more to support customers when it comes to dealing with funeral costs. Harvey Jones asks insurers what they currently do to help.
A death in the family isn’t just an emotional shock, it can also come as a major financial blow.
With the average funeral now costing £5,873, according to the latest SunLife Cost of Dying Report 2016, it is a blow many cannot afford.
Funeral provision averages just £3,994, leaving family and friends to plug a typical shortfall of £1,879.
This will be less of a problem if they took out guaranteed over-50s life or funeral plan, which typically pay in days.
However, if they have term assurance or a whole-of-life policy they may have to wait until probate is completed, especially if the deceased has not written a will or placed the policy in a trust, which speeds up the process. It can take months and sometimes years, and if the insurer does not pay until it is completed, many could struggle to fund the funeral.
Now the Protection Distributors Group (PDG) is calling for insurers to sign its new “funeral payment pledge” to help bereaved families who face delays even though their claim has been agreed.
The PDG, which consists of 10 leading protection intermediaries, is asking insurers to pay the funeral director up to £5,000 at claims stage, where no other arrangements have been made.
It also wants them to offer further help if the policyholders failed to arrange a trust or will to help their beneficiaries.
AIG Life was quick off the mark in agreeing to sign up to the pledge. So what is the rest of the industry doing?
John Downes, head of claims and underwriting at AIG, says it has always provided discretionary support to families for funeral bills, after it has agreed in principle to pay the claim.
The major problem is that many claimants don’t realise that insurers can actually do this.
“Offering to pay some of the money in advance is the first step in our drive to support customers when dealing with the loss of a loved one.”
Downes says there is a bigger challenge: “Many people don’t know what the process is for dealing with someone’s estate and how to manage their financial affairs. We are planning to produce customer guides information showing how to complete probate, arrange funerals and put financial affairs in order.”
Insurers also need to show they have the human touch, Downes adds.
“Claims teams are amazingly empathetic individuals who genuinely want to help, but clients are rarely aware they do more than simply approve and pay claims,” he says.
Tom Conner, director at specialist protection advisers at Drewberry, argues that insurers don’t do enough to help with funeral costs.
“Some will advance part of the sum assured early but this number is currently far too small,” Conner says.
Drewberry’s 2015 Protection Survey found that 29% of British workers have savings worth less than one month’s earnings, which would make it difficult to find £5,000 to fund an unexpected funeral.
“Some families even turn to payday loans or other high interest credit to cover the cost,” he says.
Conner expects most insurers will eventually sign up to the funeral payment pledge, suggesting that the few who refuse could fall out of favour with advisers when comparing policy terms and conditions.
He accepts that introducing the change into insurer systems will take time, but ultimately would like to see them go further.
“Aviva, for example, will advance up to £50,000 even where there is no will or trust in place,” he explains. “But paying for the funeral is a good starting point.”
Insurers must take care to avoid advancing the money to the wrong person, which they can get around by giving the funds to the funeral director, but Conner says common sense can often apply, for example, where the next of kin is the client’s spouse.
Alan Lakey, specialist protection adviser at Highclere Financial Services, says insurers need to improve their “dire public image” and paying claims in a timely manner will help.
“AIG’s pledge is an important first step and hopefully this will prompt other insurers to act in a similar way,” Lakey says.
However, some insurers reject the notion that they have been slow to support clients.
Johnny Timpson, protection specialist at Scottish Widows, says it has had an emergency claims payment process in place “for decades”, paying a proportion of any death claim quickly to cover funeral costs ahead of probate.
“This is normally subject to an indemnity, which allows us to recover any money paid incorrectly,” Timpson says.
He says there is little new in the PDG proposal.
“In May 2011, the ABI issued guidance advising that provider should adopt this indemnity approach as best practice, and be prepared to pay up to £30,000 in hardship situations,” he says.
Scottish Widows goes further by paying up to £50,000 on an indemnity basis.
“We will pay funeral and inheritance tax (IHT) bills directly to the undertaker and HM Revenue & Customs (HMRC) where required,” he says. “Indeed, our model formed the basis for the ABI guidance.”
The company’s intermediary protection proposition, Scottish Widows Protect, also offers emotional support and counselling for bereaved families in partnership with RedArc, as well as information on benefit entitlement.
Timpson says the industry should consider following the European approach of naming policy beneficiaries in the life contract.
“This would keep benefits outside the estate and allow them to be paid more quickly, while avoiding the need for trusts,” he says.
Until then, advisers could do their bit by writing more policies in trust and in the case of group life cover, pressing employees to complete an expression of wish form.
“They could also improve client engagement and get more involved at point of claim,” Timpson says. “Brokers Future Proof, which has launched a claim support service in collaboration with the LegaCare charity, are a good example of what can be done.”
Royal London’s group head of protection strategy Debbie Kennedy says her organisation is changing its processes to allow it to sign up to the funeral payment pledge.
She says the insurer was originally launched to help people avoid the stigma of a pauper’s grave, and this remains a core commitment.
“Paying out life cover can take time with more complex estates but we work with solicitors to make sure any immediate bereavement costs are met quickly,” she says.
Kennedy says non-financial support can be just as important.
“This is why we offer bereavement counselling to the immediate family through our Helping Hand service,” Kennedy says.
She would also like to see more advisers write life policies in trust to avoid probate delays, which can really add value to the client.
“Royal London launched an online trust service last year to make the process easier, and advisers can place existing policies in trust as well,” she says.
Chris McNab, head of protection propositions at LV=, says it fully supports the funeral payment pledge and is changing its systems to comply.
“Funerals can be costly and families may face considerable financial strain if they have to go through the full claims process before getting the money they need,” McNab says.
He says insurers can do much more than simply signing up to the pledge.
“While the funeral will be the most immediate cost, it may well not be the most significant, for example, we think providers should be able to pay the policy proceeds to HMRC to cover IHT liabilities without a grant of probate where possible,” he says.
Stephen Crosbie, protection director at Aegon, says it looks to pay all claims quickly.
“If a customer is looking for financial help sooner, we may look to make an advance payment to the funeral director,” Crosbie says.
He acknowledges that the funeral payment pledge may help some claimants but says Aegon’s focus is on paying all valid claims in full as quickly as possible.
Crosbie says the majority of claims are settled in a timely manner, making this type of payment unnecessary in most cases.
“Closing the protection gap and making sure more people buy cover will make the real difference,” he says.
Les Schroeter, head of individual protection at Premier Choice Group, argues that all insurers should have a simplified claims process for £5,000 to £10,000 automatically built into their life policies.
“The standard claims process for large sums not written in trust does not allow for quick access to fund funeral expenses,” Schroeter says.
He says this hardly presents a major risk to the insurers given that 99% of all death claims are paid.
“But it would be a great help to many a family who needs this level of cover to meet those early expenses,” he says.
Schroeter believes even relatively wealthy clients may not have ready access to the funds, which may be tied up in investments.
“It is encouraging that many mainstream insurers such as Zurich will consider a case-by-case evaluation and may make an early payment to cover funeral costs,” he says.
Peter Hamilton, head of strategic partnerships at Zurich UK, says it will pay claims in full without grant of probate up to £75,000 to an individual or £150,000 if a solicitor is involved.
“This is the total value of the claim, not a partial or proportionate payment,” Hamilton says.
“If the claim is above these values we wouldn’t settle until we had received the necessary documents, say, after probate.”
Zurich will pay money up-front to meet funeral costs, with no monetary limit as long as it is within the sum assured.
“We don’t need a will or probate to do this,” he says. “Given that 99% of life claims are paid, are there any serious hurdles?”
These advance payments can also be used to clear any of the estate’s liabilities, including IHT or outstanding mortgages, loans or credit cards.
Hamilton says Zurich would be more than happy to sign up to a funeral payment pledge. “The support we provide actually exceeds what is currently being sought,” he says.
Zurich also offers other support, such as a telephone-based bereavement and loss counselling service as part of its core product range, and legal helpline advice on probate or any other legal issues.
Few insurers dispute the benefits of the PDG campaign, and many already go beyond its demands. Now they just need to get on with updating their systems and signing the pledge.