Funeral cover and life cover are two types of insurance policies that serve distinct purposes. Here’s a comparison:
Funeral Cover- Purpose: Covers funeral expenses, typically up to a specified amount (e.g., R50,000).
- Beneficiary: Usually the deceased’s family or estate.
- Payout: Claim is paid out quickly (often within 24-48 hours) to help cover funeral costs.
- Premiums: Generally affordable, with lower monthly premiums.
- Coverage: Limited to funeral expenses, with no additional benefits.
- Term: Usually a whole-life policy, remaining in force until death.
Life Cover
- Purpose: Provides a lump-sum payout (death benefit) to beneficiaries upon the policyholder’s death.
- Beneficiary: Specified individuals, such as family members or dependents.
- Payout: Claim is paid out after the death, helping beneficiaries cover living expenses, debts, or financial goals.
- Premiums: Higher monthly premiums compared to funeral cover.
- Coverage: Can include additional benefits like disability, critical illness, or income protection.
- Term: Can be whole-life or term-based (e.g., until retirement or a specific age).
- Purpose: Covers funeral expenses, typically up to a specified amount (e.g., R50,000).
- Beneficiary: Usually the deceased’s family or estate.
- Payout: Claim is paid out quickly (often within 24-48 hours) to help cover funeral costs.
- Premiums: Generally affordable, with lower monthly premiums.
- Coverage: Limited to funeral expenses, with no additional benefits.
- Term: Usually a whole-life policy, remaining in force until death.
Life Cover
- Purpose: Provides a lump-sum payout (death benefit) to beneficiaries upon the policyholder’s death.
- Beneficiary: Specified individuals, such as family members or dependents.
- Payout: Claim is paid out after the death, helping beneficiaries cover living expenses, debts, or financial goals.
- Premiums: Higher monthly premiums compared to funeral cover.
- Coverage: Can include additional benefits like disability, critical illness, or income protection.
- Term: Can be whole-life or term-based (e.g., until retirement or a specific age).
With Life Cover
1. Policyholder pays premiums (usually monthly) to maintain coverage.
2. Upon the policyholder’s death, the beneficiary receives a payout (death benefit).
3. The payout can be used to:
– Cover funeral expenses
– Pay off debts (e.g., mortgage, car loan)
– Maintain family lifestyle and living expenses
– Fund education or other goals
4. Types of life cover include:
– Term life cover (coverage for a specified period)
– Whole life cover (lifetime coverage)
– Group life cover (employer-sponsored coverage)
What Happens Without Life Cover?
1. Family members or dependents may face financial hardship. They may need to:
– Use savings or emergency funds
– Take out loans or credit
– Reduce living expenses or lifestyle
2. Potential consequences include:
-Reduced quality of life
-Increased stress and anxiety
-Difficulty achieving long-term goals (e.g., education, retirement)
4. Dependents may need to make significant sacrifices, such as:
– Changing schools or universities
– Downsizing homes or cars
– Reducing entertainment and leisure activities
Not having life cover can leave your loved ones vulnerable to financial uncertainty. Having a policy in place ensures that they can maintain their lifestyle and achieve their goals, even if you’re no longer there to provide for them
Calculate Your Life Cover
Determining the ideal amount of life cover requires careful consideration and professional guidance. Before consulting a financial adviser or utilizing online tools, reflect on the following key factors to ensure accurate calculations:
1. Debt and credit life cover: Assess your outstanding debts, such as mortgages, vehicle finance, credit cards, and overdrafts. Determine if your credit life cover will suffice to settle these debts in the event of your passing. If not, factor in a lump sum to cover these expenses.
2. Monthly income needs: Calculate your family’s monthly expenses, excluding debt repayments addressed in step 1 and retirement contributions. Consider your children’s financial independence timelines and other dependents’ needs. Account for reduced expenses without your income.
3. Savings needs: Evaluate requirements for your spouse’s retirement, children’s education, and other savings goals. Calculate the shortfall between your current savings and future needs.
A financial adviser can help you navigate these factors, make informed assumptions, and provide a personalized recommendation for life cover. They will:
– Convert your needs into a lump sum in today’s value
– Consider existing cover through retirement funds or employer schemes
– Suggest a policy providing an ongoing income for your family, mitigating the risks associated with lump sum payouts
Online tools and calculators can also assist, but a tailored approach from a financial adviser ensures the most accurate assessment of your life cover needs.
Alternatively, you can let our AI Financial BFF calculate for you:
Why do I need both funeral cover and life cover?
Why do I need both funeral cover and life cover?
There are 2 financial products that can help during such a difficult time: funeral cover and life cover. For you to make the right preparations for your financial planning, it’s important to understand what each entails and which benefits they come with.
Read the Standard Bank article HERE
Life Insurance or Funeral Insurance?
To provide properly for your family after you pass away, it’s important to understand the difference between funeral insurance and life insurance.
Although more than 7 million South Africans have funeral policies in place for themselves and their families (according to Finscope 2019), a far lower number have taken out life insurance policies.
The reason for this is probably that many people who already have a funeral policy believe a life insurance policy is similar and therefore unnecessary.
Read the Old Mutual article HERE
Do I need funeral cover if I have life insurance?
Do I need funeral cover if I have life insurance?
Funeral cover is designed to help cover your funeral expenses or the funeral expenses of a family member. On the other hand, life cover is designed to help your loved ones financially when you pass away. So, do you need funeral cover if you have life cover? Read on to find out!
Read the 1Life article HERE