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Planning for the unexpected is never easy, but funeral insurance is one way to ensure that your loved ones aren't burdened with the financial strain of funeral expenses when the time comes. However, it’s important to understand how funeral insurance works, what it covers, and, perhaps most crucially, what it doesn't do, especially when it comes to the misconception that it is a form of savings you can access if you don’t claim.
What is funeral insurance?
Funeral insurance, also known as funeral cover or burial insurance, is a type of insurance policy designed to cover the costs associated with a funeral or burial. While the loss of a loved one is emotionally challenging, funeral insurance provides financial peace of mind by ensuring the funeral expenses are taken care of.
A monthly premium is paid for a funeral insurance policy, and in the unfortunate event of death (or the death of a beneficiary – a family member covered under the policy), the insurer pays out a lump sum to help cover funeral-related expenses. The premium amount can vary based on factors such as age, health, and the level of coverage selected.
Who can be covered?
Funeral insurance typically covers the policyholder and their immediate family members, such as spouses and children. In some cases, you can also include extended family members, depending on the terms of the policy. It is thus important to check your policy information and make sure all details (such as names and ID numbers) are correct as they appear in the ’ IDs or birth certificates.
Ever wondered whether there is a limit on the amount you can insure loved ones for and on the people you can insure? The answer is a simple “yes”. Applicants must demonstrate an insurable interest in the life being assured, otherwise they have no right to insure the person. Furthermore, funeral insurance is limited to a maximum of R100 000 sum insured and to a maximum of R50 000 for extended family members. Claims validations are performed at claim stage to prevent and reduce fraudulent claims.
What does the funeral insurance pay-out cover?
The pay-out from your funeral policy is a predetermined lump sum that can be used to cover a range of funeral-related costs, including:
- A coffin
- Aquamation/cremation
- Tombstone
- Catering services
- Funeral director fees
- Transportation etc.
While the exact amount varies based on your policy, this pay-out ensures that your family isn’t left to shoulder the financial burden of your funeral.
Additional benefits of funeral insurance
Some funeral policies come with added benefits, which might include:
- Grocery benefits: Providing your family with financial assistance for groceries in the wake of your passing.
- Repatriation services: Helping cover the costs of returning a deceased person to their place of origin or family.
- Memorial benefits: Providing support for memorial services or commemorations.
While these extra benefits can add value, it is essential to read your policy carefully to understand what is included.
Who receives the payout?
Typically, at the application stage or during the term of a policy, clients must nominate beneficiaries who will be the claimants in the event of the death of the main insured/policyholder. If the cover is provided for parents, extended family members and children, the policyholder is the claimant. If no beneficiary is named, the pay-out is directed to the deceased’s estate.
Claims process
Depending on the company, claiming a funeral insurance pay-out requires the beneficiary to complete a claim form and provide the necessary documentation, such as a death certificate, notification of death (Form BI-1663), IDs of the deceased and of the claimant, the claimant’s bank statement, a confirmation letter from the funeral parlour conducting the funeral, etc. Once the claim is processed, the insurer pays out the agreed-upon amount to cover the funeral costs. It is important to note that the decision to accept or decline a claim is based on the documents submitted and on the policy terms and conditions. Therefore, it is essential to understand the process and the documents required. Usually, the company will guide you on its process and what they require.
Can I get my money back if I don’t claim?
A common misconception about funeral insurance is that it works like a savings or investment plan. Many people believe that if they don’t claim over the years, they can get their premiums refunded. However, this is not the case.
No refund after cooling-off period
Funeral insurance policies are not designed as a savings product. They provide financial protection in the event of death. Most policies offer a cooling-off period (typically around 30 days) during which you can cancel the policy and receive a refund of any premiums paid, provided no claims have been made. Once this period expires, however, if you cancel the policy, you won’t be refunded the premiums you have paid.
This distinction is crucial because many people confuse funeral insurance with a savings plan and assume they can access the money if they don’t need to claim. Unfortunately, that’s not how it works. Funeral insurance is about ensuring your family isn’t left with the burden of funeral expenses.
Choosing an authorised funeral insurance provider
When choosing a funeral insurance provider, it’s important to ensure the company is an authorised Financial Services Provider (FSP). An authorised provider operates under strict legal and financial regulations to protect consumers. The insurer must meet financial soundness requirements to ensure they can fulfil their claims obligations.
On the other hand, there are informal savings clubs/burial societies that offer funeral cover but are not regulated in the same way. These entities do not have the same legal oversight, and if they cannot meet their financial obligations when a member passes away, the result could be devastating for those relying on the payout.
Cash back benefits: A special consideration
While funeral insurance isn’t a savings plan, some policies offer unique features, such as cash back benefits, which pay a portion of your premiums back after a set period. For example, AVBOB Cashback Funeral Cover rewards policyholders in cash for every five consecutive claim-free years. While this can feel like a bonus, it’s important to note that the primary purpose of funeral insurance remains the coverage of funeral costs, not building up a financial return.
Understanding the limits of funeral insurance
Funeral insurance plays a vital role in helping families manage the financial impact of a loved one’s passing. It’s designed to cover funeral and burial expenses, not to serve as a savings or investment vehicle. Understanding this distinction is essential to avoid any disappointment down the line.
When looking for funeral insurance, be sure to choose a reputable, authorised provider, and don’t fall into the trap of thinking you can withdraw premiums if you don’t make a claim. Instead, view your funeral cover as a safety net that will provide your family with the support they need during a difficult time.
By approaching funeral insurance with realistic expectations, you’ll ensure that your family can focus on what matters most when the time comes, without having to worry about the financial burdens of a funeral.
About AVBOB’s Cashback Funeral Cover
When you take out AVBOB Cashback Funeral Cover, you get rewarded in cash for every five consecutive claim-free years. That means you get the peace of mind of trusted funeral cover plus cash in your pocket every five years, which you can spend on anything you want.