Although more than 7 million South Africans have funeral policies in place for themselves and their families (according to Finscope 2019), a far lower number have taken out life insurance policies.
The reason for this is probably that many people who already have a funeral policy believe a life insurance policy is similar and therefore unnecessary. The truth is that life cover does a different job to funeral cover and it’s important to understand the difference between their functions.
“Both life insurance and funeral insurance are paid out on a loved one’s death, but the two products serve very different purposes. Funeral insurance provides short-term benefits, while life insurance covers long-term financial needs,” says Prudence Thipe, General Manager: Sales and Distribution at Old Mutual Mass and Foundation Cluster.
What does Funeral insurance cover?
- A funeral policy provides a single tax-free cash payment shortly after a valid death claim is submitted. If you have an Old Mutual Money Account and all requirements are met, we aim to pay out within two hours. Otherwise, we aim to pay out within 24 hours
- Funeral insurance is generally not underwritten or only partially underwritten. This means when you apply for it you only need to answer some questions on your health and lifestyle. You won’t need to have a full medical check-up. This is convenient, but it means the insurer lacks full information and takes on some risk. Higher risk for the insurer means higher premiums
- The payout helps cover the immediate costs of the burial service and other funeral related expenses such as transport, catering, and the tombstone
- With funeral insurance you can get cover for yourself, immediate, and extended family members
What does Life insurance offer?
- You can take out enough life cover to pay for your loved ones’ living expenses and long-term needs, including education costs and home loan repayments
- When signing for life insurance, you can choose to have the cover paid out to your beneficiaries as regular income or a lump sum
- You can add disability and/or illness insurance to your life insurance cover
- Life insurance is underwritten, which means when you apply, the insurer gathers and analyses more information about your health and lifestyle through questions and medical examinations. The healthier you and your lifestyle are, the lower your premium will be
“Life insurance covers far more than a funeral. You can get enough cover to ensure that those you leave behind receive enough funds to pay school and university fees, settle long-term debts such as a home loan, or draw a monthly income. However, the amount paid out by the insurer obviously depends on the amount of life cover taken,” explains Thipe.
“Old Mutual customers can choose as much cover as they can afford. Your monthly premium is calculated based on the cover amount and personal risk factors such as age, your health, lifestyle habits, and finances. Customers are free to revise their life insurance policy as their life stage or income changes. This flexibility enables you to tailor the policy according to your individual circumstances,” says Thipe.
How to decide what cover is best for you and your family
The best option is to have both types of insurance to cater for both immediate funeral needs and long-term life cover needs. Consulting a financial adviser is important, as they can conduct a financial needs assessment to ensure your cover suits your specific needs and circumstances.
“Funeral policies and life insurance meet different needs, but both play very important roles and need to be factored into your financial planning and legacy building for your family,” concludes Thipe.