My father has just been to a friend’s funeral and wants to buy a funeral policy.
Are they worthwhile and how do we go about choosing one?
If you had asked me this question a month ago I would not have felt as passionately about the value a funeral plan as I do now. I recently had a death in the family and have a fresh appreciation of the value of a funeral policy.
A funeral plan is there to deal with the immediate expenses that need to be covered when someone dies. The funeral is but one part of it. There are so many other costs that need to be met which we do not immediately think of. Pets need to be fed, short term insurance needs to be paid, domestic staff that the deceased had working for them need to be retrenched and accounts need to be serviced.
It takes a while to get to the point when executor takes over the management of the estate. Up until then there is a need for the family to ensure that the right things are done. This costs money.
Everyone's budgets are tight and very few people have Immediate access to the necessary funds to pay for a funeral and meet the financial costs of closing someone’s life. It takes about a year to wind up an estate so the money that is paid our will in all likelihood only be recouped then, unless there are cash assets in the estate.
There is a real need to have access to immediate cover to pay for these costs. A funeral plan certainly fills this gap – it covers the final expenses.
Now that we have made the case for having one, how do we go about choosing a good funeral policy
There are many funeral policies on the market. There are three factors to consider:
If you have a store account the chances are that you will have been offered some kind of funeral policy. What is nice about these policies is that very easy to take them out. There is usually no underwriting so even if your are unhealthy but you will be able to get cover on one of these funeral schemes. The downside here is that the rates are actually quite high. The life insurance company will have taken into account that there will be a large number of unhealthy people in this group and would be charging higher rates.
If you are healthy there may be better solutions.
Life insurance companies also offer dedicated funeral policies. Depending on the amount of cover you take, there may be underwriting questions asked. With risk cases, the healthier you are, the better the deal you can get. Because the cover is low and these policies attract an initial policy fee, it often makes sense to add multiple lives like your spouse, children and even parents to these policies.
If you already have a life insurance policy, check to see if your policy has got a built in immediate expenses benefit. The immediate expenses benefit typically pays out 10% of the cover (within limits ) within 48 hours. This is a wonderful way of meeting the immediate needs that are caused by someone's death. The cover here would also be very cheap as you would be paying the rate that you are paying on your life insurance company policy.
Some companies do not offer this benefit as a matter of course and you would have to ask for it as an additional benefit.
To get a sense of what the difference in price would be – I had a client in who was paying R350 a month to a general funeral scheme for cover for himself, his wife and two children. By moving to a life assurance company his premium dropped to R240. As he was healthy and had an existing policy I was able to offer the same cover, with underwriting for R52. It really does pay to shop around.
So to summarize, if your father is healthy he can get a very good deal by going to a life insurance company and getting a dedicated funeral plan where there will be underwriting. If he is not healthy then it would make sense for him opt for a lower cover, non-underwritten product or to join a funeral scheme that is part of a larger group. The rates here would be a bit high but at least he will be getting cover. If your father has existing life insurance then I would strongly recommend that you look and see if an immediate expenses benefit can be added to that policy.
Kenny Meiring MBA CFP ® is an independent financial adviser. You can contact him on 082 856 0348 or at Financialwellnesscoach.co.za