Item 5 · Cancelling
Cooling-off and cancelling
A new funeral policy can usually be handed back during a cooling-off period: 14 days under the Corporations Act for insurance it covers, with the money paid returned, and at least 30 calendar days, with a full refund, from insurers that subscribe to the industry’s Life Code. After that the policy can still be cancelled at any time, but Moneysmart warns that the premiums already paid will probably be lost.
Not financial or legal advice, and nothing here says whether to keep or cancel a policy. Moneysmart says to read the PDS or brochure to find out what happens on cancelling, and points to financial counsellors for help with decisions about funeral costs. Moneysmart’s funeral insurance page is the official guide.
Two cooling-off periods
The law sets a floor, and the industry code goes further for insurers bound by it. The Corporations Act’s cooling-off right covers several kinds of financial product sold to a retail client, risk insurance products among them, subject to exceptions the regulations can make. The Life Code applies to life insurance from the insurers that subscribe to it, and it lists funeral insurance and funeral expenses insurance among the policies it covers.
| Point | Corporations Act, section 1019B | Life Insurance Code of Practice |
|---|---|---|
| Length | 14 days. | At least 30 calendar days. |
| When it starts | On whichever comes first: confirmation of the purchase reaching the client, or the end of the fifth business day after the policy was issued or sold. | The day the insurer issues the policy, or, for a funeral policy with little or no premium at first, the day the first full premium is paid. |
| What comes back | The money paid for the product, though the regulations can raise or lower the amount in set cases. The policy ends without penalty. | A full refund, unless the cover is designed to last three months or less. |
| How to use it | By telling the insurer in writing or electronically, or another way the regulations allow. | The insurer tells the policy owner about the cooling-off period when the policy is taken out. |
| Limits | It ends early once a right under the policy has been used. The Act’s own example is making a claim on an insurance contract. | After the period, any refund follows the policy terms. |
Before the cooling-off period ends, a subscribing insurer says it will send documents setting out the cover, the premium and how premiums are structured, any exclusions or waiting periods, and the cooling-off period itself. Those papers are a chance to check the policy against what was said when it was sold.
When the first premium is small, or nothing
Some funeral policies ask little or no premium at the start. ASIC’s 2015 report noted products offering a free first year of cover. The Life Code sets out what a subscribing insurer will do in that case:
Before the policy starts
It says what the first full premium is, or what it expects it to be.
Before collecting it
It gives between 10 and 20 business days’ notice of when the first full premium will be taken.
Until that notice is given
It does not take the first full premium.
When it is paid
The cooling-off period runs from the day the first full premium is paid.
The Code also counts it as pressure selling to use the cooling-off period or a deferred payment to close a sale before someone has truly decided to buy.
Cancelling later
A subscribing insurer says it will explain, when it offers a funeral policy, that the policy can be cancelled at any time, what happens if it is cancelled after the cooling-off period, and whether any premiums are refunded. If the policy terms mean money is owed back, it will send it within 15 business days, and it will not pressure anyone to keep a policy they no longer want.
On refunds, the official answer is a hard one. ASIC listed it as a typical feature that premiums are not refunded when payments stop or the policy is cancelled, and Moneysmart warns that cancelling, or not being able to keep up the premiums, will probably mean losing the money paid. Moneysmart’s page for First Nations readers says that after missed payments or cancelling there may be no refund, and all the money paid could be lost.
If the payments stop
A policy can end because the premiums stopped, not because anyone chose to cancel. If a subscribing insurer cancels a policy for unpaid premiums, it says it will tell the policy owner whether the policy can be reinstated; where reinstating is up to the insurer, it may ask for more information first.
In 2015 ASIC noted that some insurers had added features that bear on this, such as a three-month grace period to reinstate a policy that lapsed for unpaid premiums, or, for a policy held at least ten years, turning it into a paid-up benefit worth part of the sum insured, with no more premiums to pay. Those were features of particular products, and whether a policy has anything like them is written in its own PDS.
ASIC’s figures for the 2014 financial year show how often policies ended early: about 16% of cancellations happened inside the cooling-off period, and another 39% in the rest of the first year. These are figures from more than ten years ago.
If the sale broke the hawking rule
Where a policy was sold during an unsolicited call or visit, there is generally a separate right of return that runs until one month after the statutory 14-day cooling-off period ends (not the Code’s longer period), or one month and 14 days after issue or sale where no statutory period applies, with a refund of all premiums paid. Item 3 explains it.
What to find in the papers
The sources above point to the same few places in a policy’s own documents:
- what happens on cancelling, in the PDS or brochure
- the length of the cooling-off period and when it starts
- whether any premiums are refunded after the cooling-off period
- whether a lapsed policy can be reinstated, and how