It's really important to understand the difference between funeral cover and life insurance and how to use it to your advantage.
While there are seemingly many similarities between funeral cover and life cover, such as both providing a lump-sum benefit in the event of terminal illness or death, there are many factors that set them apart.
Understanding what these are and how you could use them to your advantage will determine which option is best for you.
So, what are the five biggest differences between funeral and life cover?
1. Benefit amounts: Normally, funeral cover comes in packages of up to R30 000. There are a few companies that may offer more than that to clients, but this will not exceed R100 000.
Life cover, on the other hand, tends to begin at R100 000 and can go up to the millions.
2. General use/purpose: Due to funeral cover providing smaller pay-out amounts, it is mostly used to cover immediate expenses that arise after the death of a loved one.
Life cover is more long-term geared and can even be used to provide income for several years into the future.
3. Underwriting: Underwriting is the process by which insurers assess a client’s level of risk and translate that into how much cover a client can receive and how much they will pay for the policy. Funeral policies typically have no or little underwriting, meaning that almost anyone can qualify for a policy.
Life cover generally involves medical and/or financial underwriting, the results of which could affect the cover received and the premium to be paid drastically.
4. Policy coverage: Funeral cover allows you to cover multiple members on a single policy. Typically, funeral cover providers will have different funeral cover “plans” that can cover anything from a single person to one’s entire extended family.
Life cover, on the other hand, will generally only cover one person. Some companies may also allow joint life policies that will cover two people who are specifically interconnected (such as married couples or business partners).
5. Pay-out type: Although most funeral cover policies are paid out in cash, more and more are also paying out in kind. You may be able to redeem some of the value of the policy for such things as groceries, airtime, car hire vouchers, etc.
Life cover, however, is usually a cash pay-out.
The lines between funeral and life cover often get blurred as people tend to confuse the two.
But at what cost?
“Substituting life cover for funeral cover could mean a lower amount of benefits you could potentially receive. Also, as the main reason for taking out funeral cover is for immediate expenses, while life cover services longer term income, it is difficult to use funeral cover to achieve the same financial goal as with life cover,” says financial planner, Tapuwa Mwashita.
So choose wisely.