Funeral cover and life insurance: the difference

Life insurance and funeral cover should not be viewed as competitors, there is space for both in the 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 fulfil your financial responsibilities to yourself and dependants 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.

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 dependants’ continued living expenses.

As a consumer you have to think about the level of funeral cover required and pick a funeral cover that suits your needs 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. 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. Fortunately, in South Africa, advisers are regulated and trained to ensure the reliability of their advice and the professionalism of their service.

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.

 

  • Marrie is senior pricing actuary at Hollard Life Solutions

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