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What to cover – your funeral or your life?

What to cover – your funeral or your life?

Take-home message: If you have a bit of extra money, consider contributing towards life insurance instead of a funeral plan.

Losing a loved one is tough enough without those left behind having to worry about financial burdens. For this reason, many South Africans opt for a funeral plan to ensure their families don’t have to bear the cost of a funeral. However, you must be smart about it.

Some retirement funds offer a death benefit, funeral cover and life cover. Make an appointment with your to understand whether your retirement fund offers these benefits and whether the amounts provided will meet your family’s needs. Also, remember to update your Beneficiary Nomination form to help your retirement fund pay out a death benefit to your dependants should you die before you retire.

If your retirement fund does not include these benefits or the amounts are not sufficient, you can opt for a funeral plan. However, consider the benefits of contributing towards life insurance instead.

Funeral plans offer limited benefits. A funeral plan is a lump-sum payment designed to cover only the costs of a funeral, such as the coffin, burial or cremation costs, funeral service, and other funeral-related expenses. This can provide some financial relief, but only in the short term. Many South Africans pay for various funeral plans to ensure comprehensive coverage.

More cover. Life insurance also provides financial protection for your family if you die. Unlike funeral plans, which are limited to covering funeral expenses, life insurance policies provide a lump-sum payment that can be used for a range of expenses, including funeral costs, outstanding debts, and ongoing living expenses. In fact, life insurance policies may also include a funeral benefit.

Lump sum or monthly. Most life insurance policies pay out a lump sum to your family, but some pay a monthly amount for a specified term.

Funeral plans can cost anywhere from R30 to a few hundred rand per month, depending on the benefit amount and length of coverage. The benefit amount typically ranges from R10 000 to R50 000.

Life insurance policies in general cost more than funeral plans due to the wider scope of coverage and potential for long-term growth. The costs can vary from a few hundred rand to thousands of rands per month, depending on the policyholder’s age and health, with the benefit payout amount dependent on your level of cover. The higher your life cover, the higher your monthly fee and the higher your expected payout. Payouts can be anything from a few thousand rand to millions of rands in the event of your death.

Did you know?….

Amahle is 35 years old and contributes to two funeral plans at a total cost of R350 per month, which together will pay out a lump sum of R80 000. However, she could contribute the R350 per month to a single-life insurance policy with a benefit amount of R800 000.

(This serves as an example. The monthly cost of a funeral plan or life cover is determined by, among others, your age, health (smoker vs non-smoker), gender and education.)

There are a plethora of funeral plans and life insurance policies from which to choose. Chat to a financial adviser about what would work best for you.

Factors to consider when deciding on life insurance or a funeral policy:

  • What are the monthly premiums and annual increases to expect?
  • What is the benefit amount?
  • How long is the waiting period for the lump sum to pay out?
  • How many lives are covered?
  • Are you allowed a premium holiday in tough times?