Life insurance and funeral insurance are two different financial products but many South Africans incorrectly believe that one can replace the other. You may have a R500,000 life insurance policy so what is the need for a R100,000 funeral cover payout? The fact is that these different products serve different purposes and one cannot replace the other. Ideally a person should have both life insurance and funeral insurance.
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Funeral Insurance vs Life Insurance
Life insurance is looks after the financial needs of your loved ones after your departure. It should be considered as an essential financial cover for people who are sole breadwinners or any other person with financial dependants. Funeral cover pays out for the cost of a funeral and related expenses with some policies offering additional benefits like a small cash payout for month or two for personal expenses such as groceries.
- Funeral insurance policies pay out a maximum of R100,000 approximately depending on the level of cover that is purchased. Life insurance can pay out from tends of thousands of Rands to millions.
- Funeral insurance policies usually pay out within 24 to 48 hours whereas life insurance policies may pay out within days to weeks or even months after the paperwork is submitted.
- Funeral policies may include immediate and extended family members, including parents, in-laws and grandparents under one policy. Life insurance usually only covers the life of one insured person.
- Funeral policies usually do include other types of insurance products. Life insurance may be part of a dread disease (severe illness) and disability insurance.
These are just some of the differences between funeral and life insurance. There are also other aspects of cover that needs to be taken into consideration, like waiting periods. Contrary to popular belief there is no life or funeral insurance with no waiting period that can ultimately affect the payout at the time of a claim. It is always advisable to speak to a broker, financial adviser or insurer about the differences between both types of cover.
Will Life Insurance Cover A Funeral?
The pay out from a life insurance policy can be used as the beneficiaries see fit. It can be used to pay for a funeral. However, a life insurance payout can be delayed by weeks or even months depending on a host of factors, such as if the nature of the death is being investigated by the insurer. It is therefore not practical to wait for a life insurance payout if the funeral is the intention is to be conducted within days after death.
Furthermore it is important to bear in mind why life cover was taken in the first place. Its primary purpose is too look after the financial well being of dependants, be it a spouse, parents or children. The money should be well managed and used carefully to ensure that it can last for as long as possible. By relying on life insurance to cover the funeral costs, the beneficiaries will ultimately be disadvantaged to some degree by losing out of a portion of the payout, irrespective of how small these funeral costs may be.
Life insurance policies with a cash value can be used as collateral to borrow against or even cashed out in order to pay for funeral expenses. However, these are not ideal options. Taking a loan against a life policy will still result in interest and takes days to weeks to eventually pay out. Cashing out a life policy can also take several days to process and is ultimately a financial loss to the policyholder who was contributing towards it for a long period of time. A funeral insurance policy on the other hand will pay with 1 to 2 days with minimal hassles without any financial impact beyond the monthly premiums.