Should you take out a loan to cover funeral expenses?

Planning for the day we die can be a difficult and emotive affair. However, in a country with a life expectancy of only 64.6 years for women and 59.3 years for men, and an annual death rate of 11.6 per 1,000 people in the wake of Covid-19, as noted by StatsSA, planning is essential.

Although many people have funeral cover, which pays out on the death of the insured, the amount may not be sufficient to cover all expenses, placing the burden of payment on family members.

We look at the cost of funerals in South Africa, and we consider whether it’s worth taking out a personal loan to cover any shortfalls.

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Funeral costs and funeral plans

The most basic funeral costs start at around R6,000 for lower-income families, and around R20,000 for higher-income families, including the most affordable coffin and private cremation. This doesn’t cover additional costs, such as a memorial service or catering. Very few people can afford to pay for these expenses out of their pocket, which is why it’s essential to have some form of funeral cover.

Lesley O’Reilly, senior financial planner at Sanlam, says, “During the past couple of years, South Africans have discovered how important funeral plans are. The problem is that there are service providers who offer funeral plans for R30 a month, but the benefit is only R5,000, which doesn’t go very far.”

Eugene Strauss, managing executive at Absa Life, notes that it’s worth getting a funeral policy at a relatively young age because the costs are age-related. You can, for example, get a policy valued at R40,000 for R60 a month if you’re in your early 20s, however, the cost increases to R100 a month if you’re aged between 45 and 50.

The maximum cover you can take out in South Africa is R100,000, and this only covers events related to natural death.

“Funeral cover can be flexible, but it should ideally include a grocery benefit, which assists with catering, as well as repatriation benefits, which involves moving the deceased to their place of burial,” Strauss says.

Some policies allow you to add extended family members at a cost, and this can be minimal. If, for example, you add your child, you may only pay R10 a month because the child is linked to the main policy.

Can your life insurance policy provide funeral cover?

Registered financial advisor Kenny Meiring says, “Funeral plans tend to be relatively inexpensive, are free of medical underwriting, and pay out within 48 hours of a death claim submission. This is important as funeral costs must be met immediately. A typical life insurance policy takes a couple of weeks to pay out.”

Meiring says you should, in any event, ask your financial adviser to attach immediate expenses cover to any life insurance that they put in place for you.

“This benefit pays out a rand amount or a percentage of life cover within 48 hours,” he explains.

“The advantage here is that the cost of cover is a lot cheaper, as it would have been underwritten with your life insurance. For example, for a 40-year-old professional client, R50,000 funeral cover will cost R109 a month, but if you took it as an immediate expense benefit, it would cost only R8,” he says. 

O’Reilly says it’s crucial to note that there is an initial waiting period of 6-12 months before a claim is paid out, from the time that you sign up for a funeral plan.

“Some providers have a six-month waiting period for death due to natural causes, and after six months 50% of the benefit amount will be paid,” she explains. “Only after 12 months will the full benefit amount be paid out.

“However, a funeral plan will pay 100% for death due to unnatural causes only during these waiting periods. Consumers should receive written confirmation stating when claims will be paid in either eventuality."

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Should you take out a personal loan to cover a shortfall?

Strauss says personal loans are designed for unexpected and/or uninsurable events in life, like an improvement to your home or paying tuition fees, for example.

“If you take out a loan for R40,000 to cover funeral expenses at a rate of 18% over 24 months, you’ll be paying around R2,000 a month for two years, long after your loved one has been buried or cremated,” Strauss says.

“It is never a good idea to take out a loan when you’ve just lost a loved one – in fact, you shouldn’t make any significant financial decisions. But if you have no other option, consider how your monthly budget is likely to be affected.”

Meiring agrees that a personal loan should be a last resort. “People are emotional at the time of death and are always tempted to spend more than is needed,” he says. “Incurring debt that will have to be paid back in years to come must be treated with extreme caution.

“If there is an immediate cash flow issue while you’re waiting for a life insurance pay-out, for example, using your credit card could buy you a bit of time.”

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