Felix Kagura
F
rom car and home insurance to life and medical policies, there are literally hundreds of different types of insurance policies available to the public — and some policies that we all need, regardless of where we live or the jobs we perform. Figuring out which basic policy to invest in can be confusing, because there are multiple options for each one.
“Some of the most common misconceptions about insurance occur in the life insurance industry,” says Felix Kagura, head of Long Term Insurance Propositions at Standard Bank.
“Many individuals use the term ‘life insurance’ as a way to refer to funeral cover and life cover collectively.
This can cause a lot of confusion, and not knowing the difference between these products can cost money in the long run. While funeral cover is part of life insurance, the broader life insurance offering is generally wider and also provides more cover than a typical funeral policy.
“In order to get a clear picture of life insurance, you need to understand the various options available and take the time to discuss them with your financial adviser or insurance consultant.”
Kagura shares the most important questions you should ask in attempting to understand the difference between life cover and a funeral plan (see table).
Kagura Concludes: “By taking the time to understand the differences between these different offering of life cover, you give yourself peace of mind, knowing that your family is cared for in the event of your passing. If you have existing policies and are unsure about what they offer, visit your nearest financial services branch to check, verify and ensure that you have the right cover in place for all short- and long-term needs.”
Important questions to ask
What are the differences?
Funeral Insurance (Fi): A funeral plan does not replace a life cover. It provides affordable cover for the payment of funeral costs, either individually or through membership of a group that is formed for this purpose. It can be a valuable addition to your life insurance portfolio, because it assists your family within 48 hours of the claim.
Life insurance (Li): Life cover can also be a stand-alone product, or you can add on other benefits that encompass all the risks associated with life.
Depending on your needs and affordability, a life policy can include cover for critical illness, death, disability and income protection. Part of the premium may be used for savings.
What does it cover?
Fi: A funeral policy provides short-term funding for the costs associated with arranging and providing a funeral, including transport, catering, casket and tombstone, flowers, etcetera.
It also provides funds for costs leading up to and including the burial. This means that, subject to applicable terms and conditions, funeral policies need to pay out quickly when a claim is made.
Li: The purpose of life cover is to ensure that there is enough money to settle all outstanding debts upon your death, and to continue providing for your family in the future when you are no longer around to provide an ongoing income.
Normally, a lump sum can be paid to beneficiaries or kept in a trust fund from which beneficiaries who are minors can withdraw money monthly.
Also, complex life insurance policies typically cover other risks such as disability and dread diseases.
Who does it cover?
FI: You can usually insure your own funeral, as well as those of your family members and extended family on one policy. Funeral cover is an important aspect of being able to provide a dignified funeral, especially when money will be needed quickly.
LI: A life policy normally covers the policyholder for death and other events, depending on the customer’s needs. A spouse can also be covered under the same policy.
Who receives the payment?
Fi: Most policies pay out a lump sum at the time of the claim to the nominated beneficiary such as your spouse, who can then disburse the funds for the funeral expenses. There is usually one beneficiary on a funeral policy.
Li: The policy pays out to the nominated beneficiaries on the policy. It can be paid out in a lump sum, or a monthly amount, and is used to support loved ones or beneficiaries financially when you are gone. There can be more than one beneficiary of a life policy.
How soon does it pay out?
Fi: Funeral policies need to pay out rapidly when a claim is made — typically within 48 hours — to the nominated beneficiary stipulated in the policy. Payout is subject to receipt of all claim documentation, claim approval and claim validity confirmation.
Li: Life policies can pay out in a matter of days if the claim is straightforward and all the necessary documentation is received. In some instances it can take a few months if the claim is complex or if the insurer believes there is a need to verify any further aspects of the claim or cause of death, in which case it usually takes longer to wrap up the estate. The size of the estate also has an impact on the time it takes to finalise a claim.
How are premiums calculated?
Fi: Premiums are usually based on cover selected and the number of people covered on the policy. For most funeral policies there are no medical examinations required.
Li: The monthly premiums for a life insurance policy are calculated based on risk profile, which takes into account your age, gender, job, health and lifestyle. Because of this, a medical exam may be required.
How much does it pay out?
Fi: The policy payout is capped by the insurer and each one offers various limits, but usually the cap is around R50 000. This is intended as short-term funding relief for the costs related to a funeral only.
Li: With life insurance, you can tailor the amount to suit you and your family’s lifestyle needs. Your budget will also determine how much cover you can get.
Do premiums increase each year?
Fi: Premiums are reviewed annually and where necessary these will increase by an inflationary amount.
Li: This depends on the premium pattern that the customer chooses. There are options for level premiums, fixed increase premiums or inflation-linked premiums.