Thousands of Aboriginal children, including babies, are being signed up for funeral insurance in schemes the Federal Government has described as extraordinary and shocking.

The Government said the plans could cost as much as $100,000 over a lifetime.

Company watchdog Australian Securities and Investments Commission (ASIC) investigated the funeral insurance industry and found major problems, particularly for the Indigenous community.

Of all Aboriginal policy holders, 50 per cent are under 20 years old. A third are under 15 years old.

Federal Human Services Minister Stuart Robert said it was not conscionable that so many young children could be signed up.

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"There are cases where there are children under 10 who have been signed up for this product, they could pay $100,000 in their lifetime," Mr Robert said.

'I've lost $3,500': Carer seeking legal advice to recover money

Ballina woman Monica Kapeen was caring for three young relatives under eight years old when she started buying funeral insurance for herself and the three children.

Ms Kapeen sought legal advice in a bid to recover some of the money she lost. ( ABC News )

"Everyone was talking, there'd been a lot of deaths in our community, you know," Ms Kapeen said.

The policy cost $40 per fortnight, which she paid for three years before it became unaffordable.

"I was lucky to meet the bills I had, and I couldn't, so I've lost $3,500," Ms Kapeen said.

"When you only get $440 for a fortnight and out of that money you've got to pay rent, run a car ... that $40 is a lot of money. I couldn't afford it."

After missing four payments, Ms Kapeen said her policy, and all the money she had paid, was lost.

She is now represented by New South Wales Legal Aid in a bid to recover some payment.

Company confirms children being insured from birth

Ms Kapeen was a customer with private Gold Coast business Aboriginal Community Benefit Fund (ACBF).

It is the biggest funeral insurance company catering for Aboriginal Australians.

ACBF says it has 27,500 customers, a third which are under the age of 20.

Sorry, this video has expired Aboriginal babies being signed up to 'shocking' funeral insurance schemes ( By consumer affairs reporter Josie Taylor )

The company confirmed to the ABC it had covered children from birth.

The ACBF's website says if customers miss four payments, there will be no payout.

The company also told the ABC it did not pay for funerals in the case of suicide but instead returns the money or a portion of the money paid.

"This is because of specific requests from plan holders and elders who felt that a policy that included suicide was condoning it," the ACBF.

People living on 'poverty line' being targeted

Aaron Davis from the Indigenous Consumer Assistant Network in Cairns said he had been handling complaints about funeral insurance and the ACBF for at least a decade.

"A lot of the people they're targeting are on social security incomes. They're already living on the poverty line," Mr Davis said.

"Funerals ... have extreme cultural significance to Aboriginal people," Mr Davis said.

"They want to know their funeral is catered for but there are better ways of doing that."

In an open letter to the Koori Mail, ACBF said 80 per cent of its customers used the Federal Government's direct debit system Centrepay to make payments.

Centrepay allows companies to automatically deduct money directly from a customer's welfare payment before the customer can access the money.

From July next year, funeral insurance companies will no longer be allowed to use the Centrepay system, but ACBF is lobbying against that.

In a statement, the company told the ABC: "ACBF absolutely stands by its products."

"Many members of the Indigenous community cannot thank us enough after we have been able to make a payout for one of their loved ones," the statement said.

"Because ACBF's payers overwhelmingly prefer to use Centrepay, ACBF is working closely with the Department of Human Services to retain Centrepay as a payment option for our customers."

But Federal Human Services Minister Stuart Robert categorically denied that.

"I am not going to review the decision, the decision is made. It is being implemented," he said.

"It's extraordinary that any company would seek to go into remote communities, vulnerable Australians and seek to sell a product to people under 15."

Financial counsellors and legal groups are urging consumers to get advice before signing up to funeral insurance products.

For those needing assistance with funeral insurance, contact LawAccess: 1300 888 529

Or read ASIC's paying for funerals guide

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