Financial advice key to getting the right cover for your needs
If you’re shopping for funeral insurance, this could be a sign that you need financial advice.
About a quarter of all people with funeral cover have more than one policy, suggesting that consumers are using funeral insurance to cover other needs.
If they were to use a more appropriate financial product, it could cost them less. Anthony Miller, the CEO of life assurer Simply, says he was horrified to see a payslip of a teacher in KwaZulu-Natal who had 19 payroll deductions – “largely from big-brand life insurers” – coming off her salary before being paid to her.
“There’s no doubt that she would be far better off figuring out what she needs and consolidating her cover with one or, at the maximum, two providers. We know that there are lots of cases like this.”
One or two policies could be structured to ensure that she has cover for death and disability as well as a funeral benefit; this would reduce the costs and inconvenience of multiple policies.
Since most funeral policies are not underwritten on an individual basis – meaning that the life assurer does not assess the risk of giving you, as an individual, cover when it determines the premium – these products can be much more expensive than underwritten products.
In a paper presented to the Actuarial Society of South Africa in 2012, a comparison of the life products from three large life assurance companies revealed that premiums for non-underwritten cover can be up to 550% more expensive than for the same amount of underwritten cover.
This means policyholders can get as much as 5.5 times more cover for the same premium by taking out underwritten cover. However, funeral policies that are not underwritten could be cheaper if you are in poor health and/or in a risky occupation, like mining or driving trucks.
In this case only, as your risk to the life assurer would cost a lot in premiums if you took out an underwritten policy, it may make sense to use non-underwritten policy.
Miller says if you’re using a funeral policy as life cover to provide for dependents after your death, rather consider life cover instead of, or in addition to your funeral plan.
“You can normally get a higher benefit for the same premium, with the main downside being that the benefit won’t be paid as quickly.”