Funeral cover vs. life cover - what's the difference?

For many people the thought of taking our insurance can be daunting. There are so many different companies and different options available, how do you choose which one to go with?
 
When choosing between life cover and funeral cover it is important to consider the needs of your dependents after your death. This guide looks at the difference between life cover and funeral cover and what each option offers you.
 
What is funeral cover?
 
While both of these policies pay out upon the death of the policyholder, the pay outs are made to cover two different situations.
 
Karen Bongers, product development actuary at Sanlam, explained: “A funeral cover policy pays out to help a policyholder cover funeral expenses when someone dies. You can choose to cover only yourself or on behalf of someone else, like a family member.
 
“There is usually no or very little medical underwriting and cover is usually limited to around R40 000. A valid claim is usually paid within 48 hours of the required documentation being submitted to the insurance company (Sanlam).”
 
Rick Rupping, general manager and head of marketing at 1Life, elaborated: “Your funeral cover generally covers all your immediate expenses when it comes to a funeral. Generally that covers lower levels of amounts.”
 
1Life will pay out a successful funeral cover claim within 24 hours.
 
How life cover works
 
Life cover on the other hand will general cover a larger amount and is paid to the family to cover the loss of the policyholder’s income.
 
Life cover is underwritten, which means that your risk is assessed, looking at your health and lifestyle, and this plays a role in determining the amount of cover, as well as the monthly premiums that you will pay.
 
Rupping noted: “Essentially what life cover offers is, it almost replaces the income that would have been lost from the policy holder. For example, if a person earning R30 000 a month had to pass away, we would look at how much money they would lose over a period of time. Over a three year period you would lose close to R2 million worth of income for your family.”
 
Bongers added: “[Life] cover is usually medically underwritten, which enables cheaper premiums and higher cover amounts. You choose the amount you want to be insured for when you take out the life policy.
 
“Typically, life cover amounts would be higher than funeral cover amounts. But the pay-out from a life cover can take longer than that of funeral cover, so is not ideal to cover immediate funeral related expenses. It’s rather aimed to meet large or long term expenses. Furthermore, life cover would generally cover only you while funeral cover would be to cover you and your family members, for the whole or partial cost of a funeral.”
 
The benefits of having cover
 
According to Bongers, one of the benefits of having funeral cover is that is provides you with the ability for your loved ones to give you a dignified funeral, or if the policy is in another’s name, for you to give them a dignified funeral, “without having to worry about the financial costs of doing so.”
 
Life cover, in comparison, ensures that you family will be able to repay your debt in the event of your death, as well as “leave your dependants with a lump sum that will provide for them when you are no longer able to,” explained Bongers.
 
Rupping pointed out that the lump sum paid out in a life insurance claim can be split between several beneficiaries, who will in turn each receive a lump sum portion of the original pay-out.
 
From a life cover perspective it is really about having a long term view. Rupping suggested considering the following: “What are my responsibilities from a debt and family point of view, and how much to I require to cover those long term expenses, as well as the expenses that my family would require?”
 
Picking the right cover for you
 
According to Rupping, choosing between life cover and funeral cover will depend on what stage you are at in your life and how many, if any, dependants you have.
 
“If I have a family of four, and I have a bond and vehicle finance, and there is a responsibility in terms of education, one should assess life cover. And that is essentially to [cover] any debt [you left] behind and to look after your family as best as possible if you pass away,” explained Rupping.
 
He added: “If you are looking at a policy that is just going to look at funeral arrangements, then obviously you would opt for funeral cover.”
 
When considering which type of cover to take out, Rupping highlighted that people should consider “what is still owing from a debt point of view and what needs to be covered should you pass away.”
 
When claims are denied
 
“From a life point of view one of the biggest problems is non-disclosure. Non-disclosure in simple terms is dishonesty, for example, from an underwriting point of view, I did not disclose that I was a smoker. It is anything that could have put you at risk,” said Rupping.
 
Bongers added: “Both kinds of cover will usually not pay out for suicide within the first two years of the benefit.
 
“Funeral benefits usually also have waiting periods for natural causes. [For example,] if a funeral benefit has a one year waiting period, a claim for something like a heart attack (natural cause) will not be paid if it happens within the first year of the benefit, although a claim for something like a car accident (non-natural cause) will be paid (provided that it was not suicide).
 
“Life cover benefits might not pay if there was non-disclosure (if the applicant was untruthful about his medical history when applying for the policy).”