Death and Dignity
Understanding funeral plans
18.9 million people in South Africa are covered by some kind of a funeral plan. There are so many companies out there trying to sell this product - we’re constantly bombarded by SMS’s, by TV ads, by phone calls and by people in our communities wanting to sell us more funeral cover. It’s no wonder this is by far the most common type of insurance South African’s have.
What is a funeral plan?
A funeral plan is a kind of life insurance specifically designed to cover the costs of a funeral. They pay out very quickly (within 24-48 hours of the insurance company receiving all the claim documents) so the money is available when the family needs it. Funeral plans often cover more than one person (these are called Family Funeral plans).
Some people pay for multiple funeral policies – some up to 20 different policies! On the face of it, this seems crazy.
Funeral plans are good products that meet a real need, but they are generally the most expensive type of life insurance out there. And having multiple small funeral policies covering the same person, rather than one larger policy is generally a waste of money. For example, it will cost much more to have 3 policies of R10k cover each, than one policy of R30k. You might also get a lot more life insurance for the same premium as you’re paying on a funeral plan.
Also, a lot of insurance companies limit the total amount they will pay out on funeral claims for a particular individual (across all their policies). So even if you were sold multiple policies by the same company, it’s possible that you won’t get paid out on all of them if the total cover is more than that limit.
To be fair, paying for several funeral plans can sometimes make sense, since plans are taken out to cover extended family members (e.g. parents, grandparents, etc.). Some of the early funeral plans weren’t at all flexible, so, if you wanted to increase benefits, or cover other people, you had to buy new policies. As a result, over time, its easy to end up with a pile of different funeral plans eating up a big chunk of your paycheck. A logical solution to this is to just start over – figure out who you really need to cover and for how much (thinking about how much you can afford to pay every month), and then find the best products to meet your need and your budget.
This way you could save quite a bit of money, both by cancelling policies that you no longer need, and by taking advantage of new products that are better value for money. Obviously, you should confirm this by getting quotes and comparing premiums.
At the same time, you should consider your need for life or disability cover. How much do you really need to spend on your funeral, or those of your family? Or is it actually more important to make sure your children and family will be financially secure if something happens to you – that’s where life insurance really makes sense.
A big warning though - be very careful when cancelling existing policies and replacing them with something else. You must make sure that potential new policies will cover you as well as those you’re cancelling. There are a few important things to think about:
If you, (or the people you are covering under the old plans) have developed illnesses since you took them out, then you shouldn’t cancel those benefits.
- The new policies might ask health questions that will mean you don’t qualify.
- The new policies might have pre-existing condition exclusions, which means if you die as a result of an illness you had before you took out the new cover, you won’t get paid out.
- The new policies probably have a waiting period of at least 6 months – if you die due to an illness during the waiting period, you won’t get paid.
On top of that you should take some time to do a proper comparison between the products you have now - and what you’d replace them with. There might be something in the small print that affects your decision. Do your research, it’s your responsibility to make sure this is the right thing for you to do.
— Simon Nicholson —