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SA’s love affair with funeral policies



South Africa has a long love affair with funeral policies. In fact, by the middle of last year, there were more than 11 million active individual funeral policies in the country. So, if you have a funeral policy, you are in good company. But you must make sure that the policy you buy is suitable for your needs.

Funeral policies are popular because they are one of the most affordable ways to get a cash pay-out to help your family with funeral expenses when you or another member of your family dies. For a premium of a few rand per month, you can get a pay-out of thousands of rand. You or your family can then use this money to pay for a wide range of funeral costs, including the coffin, church hire, grave site, hearse and undertaker’s fee, to name a few.

Most insurers will pay-out against a funeral policy within 48-hours as long as your claim is valid, and you have supplied the necessary documentation. You must also comply with all the policy rules, or risk receiving nothing at all.

Many of you will have bought your funeral policy from a call centre, or face-to-face from an agent at a bank or funeral parlour. The Financial Services Conduct Regulator (FSCA) has often complained that fast-paced sales conversations gloss over the important facts you need to know about your policy.

How, for example, can you be expected to understand about beneficiaries, premiums and waiting periods and all the other rules after a five-minute conversation?

The Financial Intermediaries Association of Southern Africa (FIA) would love to see more South Africans getting financial advice before taking out a funeral policy; but we understand this is not always feasible. We hope, therefore, that the following consumer education article will offer some useful tips for buying or reviewing your funeral policy.

Let’s begin with some basics. A funeral policy is a type of life insurance that pays out a lump-sum towards funeral expenses when you or a member of your family dies. You have to pay a monthly instalment for this cover, called the premium, while the amount that the policy will pay out following a valid claim is called the benefit or the sum insured.

When you buy a funeral policy, you must say which of your family members will become the insured lives on the policy. You will get charged a higher premium for each member you include. You will also have to list the person or persons who will receive the pay-out when you or a member of your family dies. These are called the beneficiaries on the policy.

A funeral policy offers more peace-of-mind than a burial society because it is a formal agreement between you and the insurer, and the insurer must, by law, have enough capital to pay all of the possible claims against its books. You should also not confuse your funeral policy with a life policy. A life policy is designed to help your remaining family members with ongoing living expenses after you pass, and can include cover for death, disability and severe illness.

The biggest mistake you can make with your funeral policy is to miss your monthly premium payments. You must keep up with your payments, or the policy may become invalid. We suggest that you contact your insurer or insurance broker if you have any difficulty in making payments and ask them to explain the rules and help you to keep the policy active.

Another issue that affects many funeral policy claims is confusion about waiting periods. A waiting period is the number of months that you need to pay your funeral policy premium before you can make a valid claim against the policy. If you or one of the insured lives on your policy dies from an illness before the wating period is over, the policy will not pay. The maximum waiting period allowed by law is six months.

Finally, you need to pay close attention to which of your family members will be covered on the policy when you take it out. You can include your spouse, your children, your parents and grandparents, siblings and even aunts or uncles. You will not be able to add a family friend, even if you refer to that friend as aunt or uncle! If you have any doubts, ask.

An insurance adviser, broker or intermediary can help you to fully understand the rules of a funeral policy and assist you to make claims against the policy. They understand the various insurance products on the market and can ensure that the policy you buy is affordable and meets your needs. If you decide to go it alone, then it is up to you to ask questions until you understand the policy terms and conditions.

It is also worth checking that the policy is issued by a credible, reliable, licensed insurance provider by making sure that the business is registered with the FSCA to provide financial advisory and intermediary services. Always be on the lookout for scams, or unlicensed or illegitimate firms trying to sell you cover.