The high cost of funerals and the rising mortality rate among breadwinners have driven up the demand for funeral policies, with 39 percent of South Africans claiming to have funeral cover of some kind, according to a recent study commissioned by Finmark Trust.
Finmark Trust regularly commissions studies of the financial sector with the aim of making financial services more accessible.
The figure of 39 percent is high compared with the purchase of other financial products in a country where only half the adult population is banked and only 20 percent have access to store cards.
Only 10 percent of South Africans have taken out life insurance policies or a retirement plan of some kind, while nine percent have short-term or medical insurance, and only seven percent are actually saving money.
Statistics from the Actuarial Society of South Africa show that life expectancy in this country has dropped from 63 in 1990 to 51 last year. The mortality rates for 2006 suggest that 15-year-olds have a 29-percent likelihood of dying before they reach the age of 60.
The study, conducted by TNS Research Surveys between June and August last year, shows that although affordability is one of the main barriers to obtaining funeral cover, South Africans are largely willing to forgo other expenditure in order to buy such cover.
According to the study, at least one-quarter of people with the lowest standard of living (those in LSMs 1 and 2) have funeral cover.
The survey found that burial societies rather than formal institutions, such as banks and insurance companies, are meeting most of the demand for funeral cover.
However, the formal sector is trying to meet the demand and recently started to introduce products that are designed to be more accessible by the low-income market.
Absa, for example, has adapted its Flexi-Funeral Plan to offer benefits between R6 000 and R20 000 at premiums ranging from R28 to R160.
At least 10 percent of the total of 3 894 people surveyed said they would, or were likely to, borrow money to cover funeral expenses.
About eight percent of South Africans had contributed to a family funeral in the previous 12 months, the survey found. This contribution was over and above the money that two-thirds of them had already paid to a burial society.
The survey found that the incidence of contributions to family funerals is higher - nine percent - in the black and Indian communities than in the white and coloured communities (four percent).
The strain of financing a funeral is compounded by the fact that those who had contributed funds for such an event had done so for an average of almost two funerals each in the past year. The funds contributed were fairly substantial, with the average contribution towards the most recent funeral about R1 650.
Findings from the study also reveal that formal institutions are playing second fiddle to informal offerings in capitalising on the funeral insurance market.
A total of 19 percent of South Africans have cover provided by burial societies, nine percent bought cover from an undertaker or a funeral parlour, and eight percent bought directly from an insurance company. Other sources of cover are banks, retailers, insurance brokers, employers and administrators.
According to a previous Finmark study conducted in 2005, at least six million South Africans belong to burial societies, in which about R6 billion is invested each year.
Burial societies are usually formed by members of a family or kinship group, and the average society has 50 to 80 members.
These societies are based largely on trust. Some collect contributions each month for a pool of funds that is accessed when a member dies, while others collect money from members only when another member dies.
Funeral parlours offer you the option of pre-paying each month for a funeral. On death, the amount already paid in is subtracted from the cost of the funeral. Parlours also act as intermediaries, selling policies underwritten by an administrator or insurance company.
Formal insurers, such as banks and insurance companies, require premiums to be paid every month as long as you want cover. The policy will lapse if the premiums are not paid. The level of funeral cover from formal insurers, which ranges from R5 000 to R20 000, is generally higher than that of informal cover.
The use of funeral cover is highest (44 percent) in formal urban areas, but it is also found among people living in tribal and informal urban areas, the survey found.
Although many South Africans have funeral cover of some kind, the type of cover held differs among the various race groups.
Among black and coloured people, the most prevalent form of cover is from burial societies.
Coloureds are more likely to have cover from undertakers.
White people are more likely to have cover through more formal channels, such as an insurance company or a bank.
Burial societies provide different types of cover. Some pay out a lump sum to the bereaved family, while others make all the funeral arrangements and cover the associated costs at the time of death.
According to the study, about 49 percent of burial societies pay out cash when a person dies. This would usually be about R4 150. About 38 percent arrange the funeral and pay out some cash. The remainder make all the arrangements but do not pay out cash.
Most members of burial societies claim that their contributions did not increase much in 2006, and 73 percent claim they paid the same amount as they did in 2005. Less than one-quarter said their contributions increased in 2006.
According to the study, the largely static nature of burial society contributions may be because most members cannot afford to pay higher contributions.
Members also tend to be highly involved in their burial societies, with only about three percent of members saying they did not know how their society operated.
Most people who belong to a burial society claim to be the main member. However, burial societies provide cover for an average of six people in a family because the person with the funeral cover is likely to be the main breadwinner who is supporting five other people.
Therefore, although 19 percent of adult South Africans claim to belong to a burial society, the number of people covered by these societies is likely to be much higher, Jeremy Leach, the executive director at Finmark Trust, says.
Most burial society members are also banked, emphasising that informal offerings are prevalent even among people who have access to more formal financial products.
This may be an indication that formal products are failing to deliver on some of the benefits offered through the informal market, Leach says.
Personal Finance made some inquiries at funeral parlours to find out how much the average funeral with a burial service will cost you.
- The cheapest funeral we could find was from Faith Funeral Services in Cape Town, where you pay R2 800 for a basic funeral during the week.
The basic package includes a hearse, a car for family members, equipment for digging the grave and lowering in the coffin, 50 pamphlets for mourners, a wreath for the coffin, registration of death, and the costs of removing the body from the hospital or place of death, as well as preparing and storing the body.
The same basic package costs you an extra R1 000 if the funeral is held on a Saturday.
- At Avbob, the cheapest funeral package costs you R8 500, which includes a coffin, hearse, hymn sheet, notice in a newspaper, flowers, grave fees, equipment for digging the grave, a marquee, chairs, registration of death and storage of the body at a mortuary until the funeral.
- The costs of a more expensive funeral would cost between R24 000 and R34 000. This would include an upmarket hearse and an embellished coffin, ranging from a casket to a tiered coffin with satin or velvet linings.
- When a person dies in a state hospital and the family cannot afford a funeral, or if the family cannot be traced, the hospital management can arrange for a "pauper's funeral". Certain funeral parlours handle this type of funeral. They are contacted by the hospital authorities and cremate the body at the state's expense.