To properly prepare for these unfortunate circumstances, you must understand the difference between life cover and funeral cover. 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.
What is funeral cover?
Funeral Cover is there to take care of the immediate and often urgent costs of a funeral. It’s for people who want complete peace of mind that they themselves and their loved ones will get a proper send-off. It’s one lump sum that is legally limited to a maximum of R100,000, usually paid out within 24 to 48 hours of a claim.
Funeral cover insures you and your immediate or extended family on the same policy and pays out when a death occurs and funeral and other services need to be arranged.
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The life insurer issues a payment to your nominated beneficiary on your death, which they can use to cover funeral expenses if they want.
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.
What is life cover?
Simply put, life insurance pays out cash to a beneficiary you nominate in the event of your death from either natural or accidental causes. It’s there to preserve (and maybe even improve) the quality of life of the people you leave behind.
This payout usually caters to expenses like education costs and other repeat costs such as your bond or home rental fees, especially if you are the primary breadwinner. It can also be used to settle unresolved bills so that your family is not left paying out debts under your name and gives them the ability to support themselves when you are no longer around as their provider and care giver.
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You take out life insurance on your own life, to secure the financial wellbeing of your loved ones in the event of your death.
The life insurer issues a payment to your nominated beneficiary.
Life insurance can take longer to pay out than funeral cover because documentation needs to be collected from various sources in order to process a claim.
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.
Which is more expensive? Life cover or funeral cover
Since you need to submit very little personal information when you get funeral cover, the provider will need to compensate for this risk by charging relatively higher premiums than for life cover. It also offers a lower pay-out, since it’s meant to simply cover the cost of your funeral.
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Life cover requires so much information, the premiums can be lower. But this will also depend on the information they receive. If you pose a higher risk than most people, you may still be in line for higher premiums.
How to apply for cover?
Funeral cover
When you apply for funeral cover, you only need to submit your proof of age. You usually don’t need to include documentation regarding anything else.
Life cover
When you apply for life cover, you need to submit additional documents, and you may need to undergo a physical exam. The conclusions here are then used to calculate your premium.
Certain insurance companies consider your
credit score when they approve your application. Have a look at your credit report and find out how you can improve it.
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How many funeral and life covers can one have?
Funeral cover
Many people have more than one funeral cover. This is often a mixture of formal policies and informal burial societies. Many reputable insurance companies will pay less in cases where there is more than one policy, with different companies.
Life cover
It is possible to take out more than one life insurance policy on yourself in South Africa, but if you opt for this route then care must be taken not to “over insure” yourself.
What are the pay-out times for life cover and funeral cover?
Since funeral cover is an immediate necessity for your family after you’ve passed away, it will usually pay out within 24 – 48 hours.
Life cover will take longer to pay out because it’s a larger sum and it’s geared at supporting your loved ones long-term, rather than catering for a short-term need.
To help your loved ones speed up the process, speak with them about the cover you have in place and make sure they know which documents they would have to submit and which provider to get in touch with.
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Which policy is best for you?
There is usually a need for both, and the inclusion of life cover ensures a more cost-efficient insurance portfolio. If you already have life cover, it’s worth asking your financial planner if you can add funeral cover to the same plan, to avoid additional policy fees.
Because life insurance policies and funeral policies cover different things, it’s best to provide for both in your monthly budget. The costs of funerals are important to plan for, but life insurance will give you and your family more financial security if something happens to you.
Also, remember that many life insurance policies include funeral cover, so you can buy both for one monthly premium.
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