By Nicolette Dirk, writer, Justmoney.co.za
What is a funeral plan and what does it cover you for? How or in what circumstances will your claim be repudiated?
What are the real costs of a funeral?
Mike McDougall, CEO of the Actuarial Society of South Africa, says when someone dies the immediate family is usually expected to pay for the funeral. “If no provision has been made for this, the expense of a funeral could have dire consequences on the family’s financial situation,” says McDougall.
According to survey done on several funeral parlours, you will probably need around R15 000 to bury a loved one. McDougall says depending on your cultural background or religious beliefs the actual cost of the funeral could, however, be more or less.
But would you or your family afford a R10 000 or R15 000 funeral right now should there be a death in the family?
How can funeral cover help?
Walter van der Merwe, CEO of Fedgroup Life, says that in the South African market there are three main forms of funeral cover.
“A large proportion of the population relies on stokvels, an informal scheme where people contribute a set monthly amount to a communal pool. However, this is risky as the person appointed to make decisions and manage the fund is not governed by law or regulations, and anyone who claims has no control over how much money is allocated. Multiple claims in close succession also drains the pool and affects how much someone may get in return for their contributions,” he says.
According to Van Der Merwe, individual funeral policies are a better option as they're regulated. However, they generally offer fewer benefits than a group policy.
“Group policy premiums are often being subsidised by employers, which not only lowers their overall cost, but also means they can form part of a broader employee benefit (EB) scheme. It is also simpler to secure cover when offered as part of a group policy or EB scheme as the risk is spread over a larger pool,” says Van Der Merwe.
This also means that employees with larger families will get the same cover at the same cost for all direct family members. Additionally, equitable cover for all employees in the scheme is ensured, regardless of social standing or gross income, which offers a company a socially responsible approach to community upliftment.
Van der Merwe says there are also positive spin-offs for employers as this type of cover helps to reduce the financial stress experienced by employees should someone in their direct family pass away.
Common assumptions about funeral policies
Andre Goethals, manager at Credit Life for Insurance Busters, says that many people assume that once they stop their policy, they will get a cash back return.
“Some policies do pay out but generally a funeral policy is not a good investment vehicle for that purpose,” says Goethals.
Another misconception people have about funeral cover is that it will cover every expense. . Goethals says usually funeral policy companies can get you a discount at a funeral parlour or a cheaper casket. You can even be covered for transport costs for the funeral. But Goethals says that people sometimes expect that a R50 per month policy would pay for additional expenses not stipulated in the cover.
“You need to find out from your insurer beforehand exactly how much cover you can expect to get from your policy,” says Goethals.
Why are some claims repudiated?
It is very important to define who is classified as direct family and you need to make this distinction upfront in either a group or individual funeral policy to avoid disappointment at claim time.
“It is essential that the definition of direct family, particularly who constitutes a spouse, a child or a dependant, is clearly defined in the policy and is understood by the insured,” says Van der Merwe.
He adds that broader definitions benefit the insured, but many insurers are quite specific.Most funeral policy claims that are declined are done so based on these definitions.
A life partner, grandparent, primary caregiver, adopted child or dependant may constitute direct family in certain policies, but not in others. And according to Van der Merwe these are the types of cases that normally end up at the Ombudsman.
Certain policies also pay out directly to funeral providers, and Van der Merwe says this opens the industry to abuse. Insurers and policy holders need to be clear on who the beneficiary is, especially as policies of this nature are aimed at reducing the financial burden of a funeral. This could include more than just the funeral itself, particularly as different religions and cultures have different requirements.
It is also essential that the policy holder understands when a claim may be repudiated due to a previous claim on the group scheme. For instance, a critical illness claim by the insured may preclude a future claim on linked life cover or a funeral benefit.
What should you look out for before signing up for funeral cover?
When buying funeral cover make sure that you are dealing with a company that is registered with the Financial Services Board (FSB). Only registered companies are allowed to sell funeral policies.
McDougall says that the person selling the policy must provide proof of authorisation from the insurer. The name of the insurer must be on the application form and the membership certificate they give you.
Once the policy has been issued, you must be provided with a summary of the conditions and requirements relating to the policy. You then have 30 days in which to change your mind.
Make sure you receive a policy certificate with information about the person or persons who are covered in terms of the policy, the amount of cover, the premium, as well as a clear breakdown of costs.
Read up on what the policy rules say about missed premiums. McDougall says that generally you will be allowed one month of grace in which to pay the missed premium.
You must make sure that you receive a receipt for every cash payment you make towards the policy premium every month. The receipt must display the information of the insurance company that has underwritten your policy.
If you are not sure whether you are dealing with a registered company you can phone the FSB on 0800 110 443 or 0800 2020 87 to ask them to check. You can also find a list of registered companies on the FSB's website
You can also apply for funeral cover here