Children funeral policies, are they legal?

Recent reports highlighted the sale of funeral cover to recipients of child welfare grants. The claim that the funds are deducted directly from the grant, prior to it being deposited in the recipient’s bank account. Justmoney investigated the sale of these policies, including the legality of it, as well as the cost of premiums when the child welfare grant is currently about R330 per month.

Jennifer Preiss, the deputy Ombudsman for Long-Term Insurance, noted that the Ombud has not received complaints related to the deduction of monies from child welfare grants for funeral cover. “We receive complaints about deductions from grants but not on this specific issue,” she clarified.

Paul Myeza, CEO of Lion of Africa Life Assurance, a company which has been found to sell policies to child welfare recipients defended the company’s stance. He stated: “Perhaps the most important thing to note, is that the demand for policies exists. Poor people, as much as rich, need to bury their loved ones. Whether or not they receive a state grant, people are buying funeral policies. The most secure way for them to do this is through a registered life assurance company rather than a host of unregistered/unlicensed entities which then reinsure the policies through an assurer, thereby adding another layer of costs to be borne by the policyholder.”

The sale of funeral cover for children

The sale of funeral cover for children is not illegal, however, there are limitations to the amount of funeral cover that you can take out. Preiss clarified that for children younger than six years old there is a maximum of amount R10, 000 in funeral cover that can be taken out. For children between the ages of six and 14 this increases to R30, 000. This is as per the Insurance Act.

Not only is there a limit to the cover amount, but also to the premium that can be paid. Myeza revealed that for grant beneficiaries there is a premium cap of 10% of the grant amount. This is stipulated by Regulation 26A.

“Anyone may buy a policy and they may decide whom to cover within the policy. This could be for a single child, or it could be for a family. It is, of course, more cost effective to insure more lives in one policy as premiums are based on a sliding scale. For example, you could pay R30 for a single person, but R100 for eight people,” said Myeza. (See below for more information on the monthly premiums)

However, Myeza added: “The policies are standard family policies, so this is not restricted to children, but anyone covered by the policy. In essence the probability of an insured event is based on normal South African mortality statistics. The claim that child mortality is negligible is false. There are between 70,000 and 80,000 child deaths in a year in RSA at this point in time.”

Will Keevy, head of insurance at InsuranceBusters, believes the sale of funeral policies for children is a grey area. He feels there are things that need to be taken into consideration prior to making the decision, such as the environment the child grows up in and availability to health care. It is important to have a list of priorities when it comes to your finances. Carers or parents need to ask themselves if it’s really necessary to have funeral cover for the child, or should that money rather go to ensuring that the breadwinner of the household life is covered sufficiently to support the family (no matter how little they provide), if something goes wrong?

Good financial advice also plays a vital role. Does the client know what the product is for, when it pays out, how much they are paying for etc.? Before taking out any policy, the client should have access to sound financial advice, allowing them to make an informed decision.

The targeting of welfare recipients

Myeza stressed that the policyholders for this type funeral cover from Lion of Africa Life Assurance are offered through the same distributions channels as the company’s other policies. In other words through the normal agency sales force.

When asked for clarification, Myeza elaborated: “Contact takes place in both directions: some clients and/or intermediaries contact Lion of Africa, and some are contacted by Lion of Africa. It takes place within the normal sales function.”

In addition, Myeza emphasised that this type of product is not only available to grant recipients, but anyone wanting to take out funeral cover. However, the premiums payable may differ if you are not a grant beneficiary.

“Any member of the public can purchase a policy at any point in time. Grant beneficiaries are paying via a SASSA (South African Social Security Agency) deduction facility. Given that they are grant recipients, they are protected in terms of the 10% restriction on the premium as well as the single policy restriction by regulation 26A. However, any member of the public can buy a policy at any point in time and the pay via the payment method most convenient for them,” explained Myeza.

The cost of funeral cover

As stated above, the law sets a cap of 10% on the premium payable for funeral cover by a grant beneficiary. As a result of this cap, Myeza noted that the monthly premiums for funeral cover from Lion of Africa Life Assurance start at about R30 per month and end at about R100 per month, depending on the grant amount, for all family cover.

“By comparison, an off-the-shelf non-grant product would cost around R65 a month for R10, 000 cover for one person. Grant beneficiaries are paying between R80 and R100 for cover for eight people. It is without doubt one of the best value-for-money policies available in the market,” revealed Myeza.

Deducting premiums from the grant

With regards to the funds being deducted from the grant money intended for the child each month, the guardian has to give insurance company permission to do this. If money is being deducted and you are not sure why, Preiss highlighted that you can contacted the insurer and ask for clarification. “They need in the first instance to ask the insurer to provide proof that there is authorisation for the deduction.”

Myeza agreed, stating that for all policies taken out, an application form must be completed and a mandate signed.

If you no longer wish to have the funeral policy, you can phone the insurer and cancel the policy. It is within your rights to cancel any cover that you no longer wish to have. “It is best to do this in writing,” added Preiss.

“People who have queries or concerns can contact the SASSA and they can contact the insurer. The details of the insurer, the Long term Insurance Ombudsman and so on are on all applications, as required legislation. The process is the same as any other funeral insurance policy,” said Myeza.

*Sanlam (the other company mentioned in the original report), and the Financial Services Board (FSB) had not submitted comment at the time of publication. SASSA did not respond to several attempts to contact them.