Life insurance and funeral cover should not be viewed as competitors – there is space for both in the South African market. In fact, once understood, most people will realise they probably need both.
At its most simple, the purpose of funeral cover is to provide a lump sum that can be used to pay for costs associated with the event of dying – for example, body repatriation costs, burial and other funeral costs. Life insurance, however, offers cover in the event of death, or critical illness or disability claims with the purpose of ensuring you can fulfill your financial responsibilities to yourself and dependents after a claim.
“Funeral cover products range from basic funeral cover to more expensive cover with rider benefits, with the focus of funeral cover to assist the family of the deceased manage and pay for the costs associated with a single funeral event,” says Krithie Marrie, senior pricing actuary at Hollard Life Solutions.
She says that, unlike funeral cover, the purpose of life cover is to ensure that those you leave behind have sufficient funds to meet the financial obligations that you as the breadwinner would have – for example, to pay school and university fees, settle long-term debts such as home loans, and provide a monthly income to cover dependents’ continued living expenses.
A funeral policy is designed to pay out enough funds only to provide for a funeral but will likely not be enough to provide for family members’ needs and expenses for an extended period of time. Life cover usually provides a higher benefit amount than a funeral policy to cover such expenses.
In addition to supporting your dependants after death, life insurance is also relevant in instances when you do not die. Life insurance can include coverage for critical illness, disability and income replacement – ensuring that you can continue to meet your financial responsibilities should illness or disability prevent you from working.
Funeral cover products are relatively standard, off-the-shelf products covering listed items associated with funerals and burial. As such, they usually cover specific, named, costs. Some funeral products include a continuation option, meaning the policy will not end after your death but will allow your spouse or partner to pay the premiums and continue receiving cover from the policy for all lives insured on the policy for a specified duration, says Marrie. While the details of different funeral policies and what they include and exclude, as well as what their monthly premiums are, may vary, they all provide pre-determined and agreed sums of money to deal with different aspects of the funeral.
As a consumer you have to think about the level of funeral cover required and pick a funeral cover that suits your need and budget. Since they also generally do not require or involve advice when being sold, the person selling a funeral product is not required, and often not qualified, to advise how much cover customers should take out, or who they should cover. As such, funeral cover sales agents provide facts about the product and explain how it works, along with the relevant terms and conditions.
The amount of life insurance cover, on the other hand, is not standard. Instead, life insurance needs to be tailored to the needs and responsibilities of you as an individual. Putting together the right package for each person requires a detailed knowledge of the person’s income, expenditure, dependants, debt, assets, age, lifestyle and in some cases health, Marrie says. These products are often sold by a financial adviser who is qualified to advise you on how much life insurance cover you need and which products are appropriate.
Since life insurance involves an extensive knowledge-gathering, consultation and advice element, life insurance should always be purchased in consultation with an accredited insurance adviser or broker.
Most life insurance products have some level of underwriting, which can be as simple as answering a few health-related questions or, in some cases, having certain medical tests done to assess health. These may include blood tests, cholesterol tests, blood pressure or ECG examinations. These requirements are based on the amount of cover and the type of cover required.
Given the cultural significance of funerals in South Africa as well as the need to provide for dependants, many South African consumers require both funeral cover as well as life insurance. While funeral costs can be included in a life insurance policy, culturally, many South Africans prefer to maintain them as separate policies. “This is a matter of personal choice,” says Marrie.
Either way, South Africa’s insurance industry has vast experience – and an incredible range of products, insight and wisdom – to share with consumers around life and death.
“It never hurts to pick up the phone and talk to an insurer or broker to understand the types of cover you require, be it funeral, life cover, critical illness, disability or income replacement cover. By performing a financial needs analysis, advising you on suitable products and assisting in the application process an adviser will give you peace of mind knowing your family is adequately covered in the event of death, disability or a critical illness,” says Marrie.
PERSONAL FINANCE