Funeral insurance is the most popular form of insurance bought in South Africa.
Almost 19million adults in the country are covered by a funeral plan and more than 40% of adult South Africans are covered by two or more funeral policies.
But consumers misunderstand some of the most basic things about their cover, which results in complaints to the Ombudsman for Long-Term Insurance.
Brad Frank, a senior policy adviser at the Association for Savings and Investment South Africa, says it is important that you understand exactly what you are buying when you sign up for funeral cover.
“Ask the right questions before you buy the policy and then insist on receiving the policy’s terms and conditions so that you can make sure that you receive the cover you expect.”
So before you sign on the dotted line, make sure you have considered the following:
What am I trying to achieve?
It might sound like a no-brainer, but it isn’t. Many people use funeral insurance to cover much more than the cost of a funeral. Typically, it is used to provide for dependents.
Anthony Miller, the CEO of Simply, says you need to carefully consider your objectives.
Do you have dependents? Would you be able to afford a funeral if one of them died?
Do you want to make sure they’re OK if something happens to you?
How much money would they need?
If you were disabled and unable to work, who would support you and your family?
What kind of funeral do you want?
Would your family be able to afford it?
He says that most people need a mix of life, disability and family funeral cover.
Life insurance is generally cheaper than an equivalent value of funeral cover, Miller says. You can also generally get far more life cover than funeral insurance cover.
Disability cover is important as it pays out a lump sum or a monthly income if you are disabled and unable to work.
Family funeral cover allows you to cover your immediate family efficiently, and pays out quickly when you die, he says.
What can I afford?
Make sure you know how much you can afford to pay in a premium, advises Miller. Rather choose a lower amount of cover that goes with a premium that you can comfortably afford than a premium that you will eventually be unable to pay. “If you miss a premium, there is a risk that your cover will lapse, and everything you’ve paid up to that point will have been wasted.”
What about waiting periods?
When you buy funeral cover you don’t need to go for blood tests and medical examinations. To stop people from buying funeral cover only once they have a serious illness and are expecting to die as a result, funeral cover usually comes with waiting periods. These vary, but they tend to be between three and 12 months for death as a result of natural causes; and up to 24 months for suicide.
“No waiting periods apply to deaths caused by accidents and you are covered from your first premium payment.
“Once the waiting periods that apply to your policy are over, your policy will pay out if you or anyone else covered under your policy die in an accident, from an illness, due to natural causes and even due to suicide,” says Frank.
What about exclusions?
Your funeral policy is likely to come with exclusions, which are conditions under which your policy will not pay a benefit. “Your policy contract may, for example, state that if you commit a crime that results in the death of a family member covered by the policy, no benefit will be paid.
“This is an exclusion. Make sure you and your family members are aware of any exclusions that may apply to your policy.”
Your policy may exclude cover for pre-existing conditions, such as heart disease.
After your death, the life assurer will check with your doctor if you were being treated for any heart-related illnesses and if you were, apply the exclusion.
Frank says that waiting periods and exclusions are often misunderstood, resulting in many complaints to the Ombudsman for Long-term Insurance. It is important that you and your family members understand the difference.
Once the waiting period that applies to your policy ends, your policy will pay.
However, your policy will never pay for events that were listed as exclusions in your policy.
Is there a grace period?
When choosing a policy, find out how generous the provider is with grace periods, which is the time the assurer gives you to pay an outstanding premium before your cover is lost.
Make sure to do homework
You’ve got to have your wits about you when you entrust your money to any financial services provider. In the case of a funeral insurer, this means checking that the company issuing the policy is registered with the Financial Services Board, and getting a written undertaking from the insurer or the person selling you the cover that you will receive a Certificate of Assurance or a Certificate of Membership.