Funeral cover is big business in South Africa! For many, funeral cover is deemed absolutely essential and some folk even take out multiple policies. But do we all need funeral cover? Is there a better way to do things, or at least, is there an alternative? Let’s take a look at all you need to know about funeral cover in South Africa.
Firstly, what is funeral cover?
Funeral cover (also called funeral insurance) is a form of insurance that pays a specified amount of money in the event of a death, ensuring that the costs of a funeral will be covered so that family members do not have to struggle financially at this difficult time. It works much the same as other types of insurance in that you can choose how much cover you wish to take, and which family members you wish to cover.
Some funeral insurance providers offer additional benefits such as burial repatriation, grocery benefits, cash payouts, or other useful things that one would need at such a time.
Listen to the podcast episode on the good and bad of funeral policies with Gugu Sidaki
Is funeral cover worth it?
This is a tricky one to answer as there isn’t really a definitive answer that applies to everyone. It’s all about the risk you’re willing to carry, and how much money you can access should the time come.
The average funeral in South Africa is around R25,000 according to a research from UK-based company SunLife. However, it could go up to R75,000 once you add the top-of-the-rage options, venue hire and catering. As with everything, you can choose from a wide range of options and costs.
One of the first questions you should ask yourself when deciding whether you need funeral cover is, do you have access to at least R25,000 as cash. If you do, then perhaps you can do without this insurance. However, you may still prefer to have a cash payout when the time arrives. Remember that you may have millions of rands worth of investments, but these will be held up as part of your estate winding up process, for months! Your family won’t be able to access your money for a long time so Funeral insurance can be very handy in that it pays out a cash payment, usually within 24 hours.
If you don’t have access to this kind of money then perhaps funeral cover is worth it for you, until such time as your circumstances change.
The price for peace of mind
A 28 year old looking for funeral cover for themselves and their partner will pay around R120 per month for R30,000 worth of cover. A 48 year old will pay in the region of R140 for the same cover. So, age is definitely a factor in the price. Adding cover for your children or other family members will also increase the premium.
Now let’s say that the 28 year old dies at age 35. Well, then the insurance was well worth it as the premiums totaled R10,080 and the cover amounts to R30,000. However, if the 28 year continues paying R120 per month for 40 years, that totals R57,600 and makes the insurance very not worthwhile.
As with all insurance policies though (such as medical aid or car insurance), you may not feel that you get your money’s worth if you are not claiming, However, you are paying for peace of mind should something happen, and the payout. It may not always be worthwhile, but not having it could be disastrous!
So, what risk are you willing to take?
Can I save for funeral expenses myself?
Yes, absolutely. And in fact, I have done this myself and find it a better solution for me. However, it does require that your loved ones (spouse, parents or children) have access to funds in the short-term while they wait for your estate to be wound up. This means that they should have an Emergency Fund themselves that can cover something like this.
I have heard of some interesting plans that people have made with regards to leaving behind enough to cover funeral expenses. One person I know has Krugerrands that can easily be sold should anything happen. Some folk keep cash in a safe (not my ideal solution, but if it makes you feel comfortable then sure).
In some cases you may already have some funeral cover as part of other policies you have, or even store cards. It’s worth finding out about these. It’s worth looking at your Group Life Cover at your employer (if you have) as that may also include some funeral insurance.
The idea however is that you mitigate the risk. So if you can make a plan for the money to be available, then you do not need this type of insurance.
How many funeral policies can I have?
You can have as many as you like. A better question however is, how much funeral cover do I need?
Personally I’d rather just have a single policy that offers the right cover for me and my family. Why complicate life with multiple policies and multiple premiums? Take a look at what the average cost of a funeral is, decide on what is important to you, and take out a single policy that gives you peace of mind. You can do your research, factor in additional benefits, and look at your budget.
If you are taking out funeral policies as a form of an investment, then it is definitely not the best investment.
Use insurance policies for insurance and leave investing to proper investments.
It’s also important to understand that having multiple policies will not necessarily result in them all paying out. If you an your siblings all have a funeral policy with the same provider, for your Mom, they may only pay out on one or two policies. This type of restriction will be in the policy document, although it’s probably very hard to find. And it’s in super small print. LOL
Here is a good article from the Sowentan on having multiple funeral policies.
Can funeral policy premiums increase without my consent?
Yes! It does of course depend on the exact wording of the policy. In general funeral cover premiums have increased over the Covid pandemic as the cost of funerals have risen. Much like car insurance, your insurer can adjust the premium as the risk factors change. These can be out of your control and your choices are to continue paying, or cancel the policy.
Note that you will not be refunded your premiums should you cancel the policy. Think about medical aid or car insurance, you pay a monthly fee to avoid a risk. Should you stop paying, nothing is refunded to you as you received the cover for the months that you were paying.
What happens if I miss a funeral cover payment?
If left unattended, this will cause your policy to be cancelled. But, if you phone the insurer immediately and make the payment within a few days, you will usually be okay. It really depends on the insurer and the exact wording of the policy. Some policies cater for this by allowing a missed payment over the course of the policy, or allowing late payments. You may however incur a penalty and it is possible that your premium could be negatively affected.
The bottom line is, don’t miss a payment! But, if you do, contact the insurer immediately to understand what your options are.