Who could ever forget Anna…

One of our life insurance companies had just sent us a mail stating that another advisor was requesting information on her.
Now the only time we ever get these types of mail is when a client is looking around for better options elsewhere. Look, I don’t blame anyone for shopping around, but what made Anna’s case worse, was that it hadn’t even been a month since she’d purchased a million Rand’s worth of accidental death cover for her husband.

So I climb on the phone and give her a call:

“Hi Anna, how are you?”
               “I’m fine and you?”
“I’ve just noticed that another advisor is checking up on the life insurance you’ve just bought?”
               “Don’t worry. I’m trying to buy as much insurance as I can wherever I can get it. I’m not cancelling yours.”
“I’m glad to hear that. Remember if there’s anything you need, just give me a call.”

Which brings up today’s topic

Put yourself in Anna’s situation. Her husband can’t buy life cover because of ill health or age. What options do they have?
Off the bat I can think of two:

• Accidental death cover, or
• Funeral cover

The problem with accidental death cover is exactly that…You need to die in some sort of accident to claim. At least with funeral insurance, they pay regardless of how you die.

Let’s compare funeral cover and life insurance to see which works out best…

The advantages offered by funeral insurance

No questions asked before or after

Before you die…
You don’t have to answer pages full of health questions to qualify for funeral cover. It’s exactly the opposite with life insurance. A ton of questions get asked upfront and depending on how you answer them, you get to do the relevant medical tests.
Telling the occasional white lie here or there doesn’t help either. The legal term for doing that is non-disclosure and it’s the biggest reason why claims get rejected.

After you die…
Once again not too many requirements with funeral insurance. Basically, a death certificate and 48 hours later the money in the account.
With life insurance, they want to know what caused the death.

If death is by natural causes:

• Medical reports are called for.
• It’s also where they go over your application form with a fine-tooth comb for the non-disclosure bits discussed above.

If the circumstances surrounding the death are not natural:

• a police investigation would take place.
• If no foul play was found, a pay-out will occur.

The disadvantages of funeral insurance

One size fits all

Everyone pays the same within the various age bands. You can be male, a smoker and never exercise a day in your life and pay the same as the girl next door who never smokes and who runs the Comrades marathon every year.
With conventional life insurance this would never happen:

• Males always pay more
• Smokers always pay more
• High-risk occupations always pay more
• No age bands lumping you together with everyone else of a similar age regardless of sex.

Because funeral insurance pay-outs are relatively small compared to conventional life insurance; the insurer can’t be bothered to individually underwrite every person. So, they build ‘fat’ into the cost to subsidise the ‘bad risks’.
With life insurance, they look at you as an individual and base your cost on mortality and morbidity tables. In other words, they track statistics and know how long someone of your age, your gender, and your lifestyle is expected to live.

You can’t buy enough of it

There are two types of funeral policies on the market:

• Assistance policies, and
• Life insurance policies

Funeral assistance polices are limited to paying R30,000 for any one person (as we speak in 2018). But the thing with funeral assistance policies is that their cost is not regulated by law. You might find that the admin costs are way higher than with funeral policies offering more than R30,000 cover. Funeral life insurance policies often pay up to R100,000 for any one person and commissions are regulated.

But both have a problem in that you can’t buy more cover than they’re willing to offer. And you can’t bypass this by taking out a second and third policy with them. Each time you needed more funeral cover, you’d have to approach a different company. What happens if you need a million Rand in cover?

With conventional life insurance, you can buy as much life cover as you want within reason.
As long as you can:

• afford the cost, and
• Give a good reason why you need R10 million life insurance when you have no debt and earn R1,000 a month

You’re good to go!

You can’t lend it to them

So, you’re taking out a loan to buy a home. The bank wants to know that if you die, the bond is paid off. The way they do this is by asking you to cede a life insurance policy to them for the duration of the loan.

Funeral insurance just isn’t made to do that sort of thing.

You might have to wait a while

Check your fine print.
In the first six months to a year of owning your funeral insurance, death by natural causes is not paid even though you’ve never skipped a payment.
With conventional life insurance, your claim will be paid the moment the insurance company receives your first payment.

You can see that there are several disadvantages to owning funeral insurance. Let’s turn our attention to conventional life insurance.

The advantages offered by life insurance

Rand for Rand it’s cheaper

No question about this – funeral insurance is expensive.
I scouted around and found R70, 000 funeral insurance at over R300 a month for a 30-year-old. For R300 a month the same 30-year-old could buy a few million Rands worth of conventional life insurance!

The disadvantages of life insurance

They might not want you

If you’re under 18 or older than 70, then chances are you won’t get offered life insurance. Too unhealthy and chances are just as slim that you won’t get life insurance. Develop one or two of the lifestyle diseases such as high blood pressure or diabetes and kiss the chance of ever buying life insurance at normal rates goodbye.

Conclusion

The truth is you need both. Conventional life insurance should form the backbone of your cover with funeral insurance to take care of the funeral costs.

Buy up as much life insurance as you can afford when you’re young since you will never get it any cheaper ever again. Then hang onto it for dear life. Nothing sadder than seeing someone trying to buy life insurance and not one insurance company interested in offering it to them.

If conventional life insurance is something you no longer qualify for, then buying up as much funeral insurance as you can is the next best option.

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