Funeral cover: what to look for

A funeral can be costly, ranging from R7 000 to R30 000 or more, and finding the money to pay for one can add to the trauma following the death of a loved one. Buying funeral cover is a practical step to take, but before you buy, there are a number of variables to consider.

There are different types of cover. You can get stand-alone funeral insurance, which is designed to pay out quickly and smoothly, or funeral cover as an add-on to your life cover.

Stand-alone policies are generally sold via life assurers and their intermediaries, and via funeral parlours. You can also get forms of cover or assistance from burial societies and friendly societies (see “Different ways of covering funeral costs”, below).

“Usually, life cover does not pay out in time to finance a funeral, while funeral policies are designed to pay out quickly,” Peter Dempsey, the deputy chief executive of the Association for Savings & Investment SA (Asisa), explains.

Most, if not all, funeral products are non-underwritten, which means that, in order to buy cover, you don’t need to answer a long list of questions about your health or undergo medical tests, such as for HIV or nicotine to check if you’re a smoker. Non-underwritten policies are generally more expensive than underwritten ones.

However, Dempsey points out that insurers are allowed to ask questions about your medical history. “Insurers may apply specific exclusions for existing illnesses – for example, cancer, if you are already suffering from such an illness.”

The biggest risk when you buy a funeral policy is that the adviser selling you the policy does not disclose important information, such as exclusions and waiting periods (see below), he says. It is very important you read the policy contract carefully – and if you feel that the policy sold to you does not provide the cover you expected, you may cancel it within 30 days without incurring any payments.

Funeral products vary widely when it comes to premiums, cover and benefits, so it pays to shop around. Factors to consider when comparing funeral products are:

* Features and benefits, such as:

- The waiting period (the period between buying the policy and it paying out on a claim);

- The level of cover;

- Premiums and benefits may increase each year – or you can be guaranteed a fixed rate for a non-escalating benefit;

- Additional benefits – this is where insurers typically do things differently, making direct comparisons between products difficult.

* How it is sold, for example:

- Through a funeral parlour, church, labour union or other group arrangement, or via a call centre or the internet, where premiums are typically cheaper; or

- Face-to-face with an intermediary or adviser, which is typically more expensive.

* The service factors, such as:

- How fast claims are paid; and

- How easy it is to submit a claim, change your policy or lay a complaint.

Because funeral cover is typically not underwritten in South Africa, insurers generally apply waiting periods.

“Funeral policies usually apply a six-month waiting period for death as a result of illness and two years for suicide,” Dempsey says. “This is to prevent people from buying cover only when they know they are likely to die soon. Funeral policies will, however, pay out immediately if the death results from an accident.”

There are legal limits on the amount of cover that can be bought for children:

- Child under the age of six – a maximum of R10 000; and

- Child between the ages of six and 14 – a maximum of R30 000.

For anyone older than 14, insurers apply their own cover limits.

Exactly what the policy covers, such as handling the documentation for the funeral and the costs of the venue, coffin, transport to the grave, and headstone, depends on the policy. If you buy a policy from a funeral parlour, for example, the parlour itself would typically provide the funeral, coffin, hearse and the burial or cremation.

ESSENTIALS

When taking out a funeral policy, Dempsey advises you to make sure it offers the following:

* A one-month grace period should you be late with a premium.

* If your policy ceases because premiums have not been paid, the right to have it reinstated once without any new requirements, such as a waiting period, provided this is done within three months from the date of the last premium payment.

* Accidental death cover starts on receipt of the first premium. A two-year suicide exclusion may be applied, as may a waiting period of up to six months for death from natural causes. In the case of cover for your parents, it is acceptable for an insurer to apply a 12-month natural-causes waiting period.

* The option of the lump-sum payout being made directly to the beneficiary. “A funeral policy must provide the beneficiary with the option of receiving a lump sum. An insurer cannot force the beneficiary to use the money to fund a funeral with a specific funeral parlour,” Dempsey says.

If you have lump-sum cover, the full amount will be paid to the beneficiary, irrespective of the cost of the funeral. This means that if, say, your cover is for R50 000, the beneficiary will receive R50 000, even if the funeral costs only R30 000.

THE CLAIM PROCESS

The claim process can be onerous. The insurer typically requires:

* A certified copy of the death certificate;

* A copy of the police report if it is an accidental death;

u A certified copy of the deceased’s ID;

* A copy of a BI-1663/BI-1680 or DHA-1663/DHA-1680 form (forms completed by the doctor on death);

* A claim form;

* A copy of the claimant’s ID;

* A bank statement from the claimant; and

* Proof of residence of the claimant.

Once all this is in order, payment can be made. How quickly depends on the insurer, but there is normally an agreed turnaround time of 24 to 48 hours. Sanlam, for example, pays 80 percent of claims within four hours of getting all the necessary documentation. Old Mutual promises to pay within 48 hours of receipt of documentation, says Stefan van der Westhuizen, the protection product development manager. “In reality, the vast majority are [paid out] within 24 hours,” he says.

The amount of cover you choose depends entirely on your needs, which should be assessed at sales stage. Also, insurers charge different prices, depending on complex actuarial factors.

Premiums may be fixed, or they may increase annually. It is generally up to you to choose to increase your premium and cover each year, to ensure that the amount keeps up with inflation.

Dempsey advises you to revisit your funeral policy, or that of a loved one, from time to time. He recounts an example: “A grandmother died in her 80s. Her family knew that she had a funeral policy, but did not realise that she had taken out the policy in 1968, at a monthly premium of R2.05. While her humble funeral cost more than R6 000, the policy paid out R200.”

At Old Mutual, Van der Westhuizen says, “premiums and cover increase by the same percentage each July, based on the Consumer Price Index, to enable cover to keep pace with inflation.”

WILL THE POLICY COVER THE WHOLE FAMILY?

Each insurer has different structures, but a typical funeral product has the following options:

* Cover for yourself – this can be optional or compulsory, depending on the provider;

* Cover for you and your immediate family (spouse and children) – this could be as a package, where you pay a single premium for the immediate family, where the premium is based on your age, or separately, where you choose how much cover each life needs, and pay a separate premium for each life, depending on age; and

* Cover for you and your immediate family as well as your parents and extended family (such as aunts, uncles and cousins) at a premium per life covered.

“People often forget that their children are covered [under a family policy] only until they are 18, or 25 if they are students and still financially dependent on their parents,” Dempsey says.

SOME SPECIFICS

Providers each have their specific benefits and bonuses. For example:

* Old Mutual’s Standard and Comprehensive+ plans have a cash-back benefit after every 36 premiums received. They also have a grocery benefit that provides payments for 12 months when a person dies, to be used for grocery expenses; and education benefit that provides payments for 12 months, to be used for education expenses.

* On its basic package, Metropolitan Life offers a paid-up benefit, which means no more premiums are due after the policyholder dies or retires, but all the family members on the policy are still covered. On its comprehensive package, it offers an iNkomo benefit of up to R15 000, in terms of which an amount is paid towards the cost of ceremonial requirements such as the provision of a cow, sheep or goat.

DIFFERENT WAYS OF COVERING FUNERAL COSTS

There are different types of providers of funeral cover or assistance. These are governed by different regulations.

* Insurance policies. Only companies registered with the Financial Services Board (FSB) can sell funeral policies; these are life companies or “assistance business” companies, which specialise in funeral policies. Life companies with full licences may offer benefits of up to R50 000. Limited-licence assistance business companies may sell funeral insurance for benefits of up to R30 000.

* Friendly societies. Friendly societies must be registered with the FSB and may provide funeral benefits only up to R7 500. They are usually established by churches, trade unions or even companies. They must be run on a non-profit basis, may not market their products, and may not appoint full-time employees.

* Burial societies. Burial societies are not regulated. They can be best described as stokvels for burials. Members are usually a group of people from the same community who know each other well and who trust each other.

A burial society encourages its members to save a certain amount every month for when funds are needed to bury a loved one.

They also give members and their relatives emotional and logistical support following the deaths of loved ones.

Short of the society’s treasurer absconding with the money, there are generally no other risks.

You can belong to a friendly or burial society and also have a life insurance funeral policy. The society will offer immediate assistance when a family member dies, and the cash benefit from the policy may be claimed only after the funeral.

WARNING

The Association for Savings & Investment SA (Asisa) says that only companies registered with the Financial Services Board (FSB) can sell funeral policies. Asisa says you need to make sure that the financial services provider number and the name of the insurer must be shown on your policy provider’s documentation (see “Check list”, below).

Under the Long-term Insurance Act, funeral policies sold by any provider must be underwritten by a registered long-term insurance company.

In warning you to be cautious when buying a funeral policy, the FSB reported in March that it was investigating entities that were selling funeral policies after it asked them to provide proof that their funeral policies were underwritten by a registered long-term insurance company, as required by law. (Also see “R2m fine for Eastern Cape funeral parlour”, link below.)

CHECK LIST

* Make sure that the person or provider selling you the policy – the intermediary – is licensed by the Financial Services Board (FSB) as a financial services provider (FSP) or is a representative of an FSP accredited to market the products of a registered life company. Also, ensure that the company whose policy you are being offered is a registered long-term insurer. You can check this with the FSB on 0800 110 443.

* The intermediary must be able to produce marketing material from the registered life or assistance business company underwriting the policy, providing more information about the policy you are about to buy.

* Once the policy has been issued, you must be given a summary of the conditions and requirements relating to the policy. You then have 30 days to change your mind.

* Make sure you receive a policy certificate with information about who is covered in terms of the policy, the amount of cover, the premium, as well as a clear breakdown of costs.

* Ensure that you receive a receipt for every cash payment you make each month to cover the policy premium. The receipt must display the information of the insurance company that has underwritten your policy.

• R2m fine for funeral parlour