Choosing the right insurance
Insurance helps usually when times are tough – and it is your consumer right to be clear on what you signed up for.
Figuring out which policy to invest in can be confusing, because there are multiple options, so take the time to find out what’s covered before you sign on the dotted line.
From car and home insurance, to life and medical policies, there are literally hundreds of different types of insurance policies available to the public – and some policies that we all need, regardless of where we live or the jobs we do.
Felix Kagura, Head of Long Term Insurance Propositions at Standard Bank, said some of the most common misconceptions about insurance occur in the life insurance industry.
“Many individuals use the term ‘life insurance’ as a way to refer to funeral cover and life cover collectively. This can cause a lot of confusion and not knowing the difference between these products can cost money in the long run. Whilst funeral cover is part of life insurance, the life insurance offering is generally wider and also provides more cover than a typical funeral policy,” said Felix.
“In order to get a clear picture of life insurance, you need to understand the various options available and take the time to discuss them with your financial adviser or insurance consultant,” he said.
Felix shared the most important questions consumers should ask when trying to understand the difference between life cover and a funeral plan:
What’s the difference between funeral and life insurance
• A funeral plan does not replace life cover. It provides affordable cover for the payment of funeral costs, either individually or through membership of a group that is formed for this purpose. It can be a valuable addition to your life insurance portfolio, because it assists your family within 48 hours of the claim.
• Life cover can be a stand-alone product, or you can add on other benefits that encompass all the risks associated with life. Depending on your needs and affordability, a life policy can include cover for critical illness, death, disability, income protection, and part of the premium may be used for savings.
• What does it cover?
A funeral policy provides short-term funding for the costs associated with arranging and providing a funeral, including transport, catering, casket and tombstone, flowers and so on. It also provides funds for costs leading up to and including the burial. This means that, subject to applicable terms and conditions, funeral policies need to pay out quickly when a claim is made.
The purpose of life cover is to ensure that there is enough money to settle all outstanding debts upon your death, and to continue providing for your family in the future when you are no longer around to provide an ongoing income.
Normally, a lump sum can be paid to beneficiaries or kept in a trust fund from which beneficiaries who are minors, can draw money monthly.
Also, complex life insurance policies typically cover other risks like disability and dread diseases.
• Who does it cover?
You can usually insure your own funeral, as well as those of your family members and extended family on one policy. Funeral cover is an important aspect of being able to provide a dignified funeral, especially when money will be needed quickly.
A life policy normally covers the policy holder for death and other events depending on the customer’s needs. A spouse can also be covered under the same policy.
• Who receives the payout?
Most funeral policies pay out a lump sum at the time of the claim to the nominated beneficiary such as your spouse, who can then disburse the funds for the funeral expenses. There is usually one beneficiary on a funeral policy.
Life policies pay out to the nominated beneficiaries on the policy. The pay-out can be a lump sum, or a monthly amount, and is used to support loved ones or beneficiaries with their future financial needs after you are gone. There can be more than one beneficiary on a life policy.
• How soon does it pay out?
Funeral policies need to pay out quickly when a claim is made – typically within 48 hours – to the nominated beneficiary stipulated on the policy. Payout is subject to receipt of all claim documentation, claim approval and claim validity confirmation.
Life policies can pay out in a matter of days if the claim is straightforward and all the necessary documentation is received. In some instances it can take a few months if the claim is complex or if the insurer believes there is a need to verify any further aspects of the claim or cause of death, in which case it usually takes longer to wrap up the estate. The size of the estate also has an impact on the time it takes to finalise a claim.
• How are premiums calculated?
Premiums are usually based on cover selected and the number of people covered on the policy. For most funeral policies no medical examinations are required.
The monthly premium for a life insurance policy is calculated based on risk profile, which looks at age, gender, job, health and lifestyle. Because of this, a medical exam may be required.
• How much does it pay out?
The policy pay-out on a funeral policy is capped by the insurer, each of which offer various limits, but usually the cap is about R50 000. This is intended as short-term funding relief for the costs related to a funeral only.
With life insurance, you can tailor the amount to suit you and your family’s lifestyle needs. Your budget will also determine how much cover you can get.
• Do premiums increase each year?
Funeral policy premiums are reviewed annually and where necessary these will increase by an inflationary amount.
Life policy premiums depend on the premium pattern that the customer chooses. There are options for level premiums, fixed increase premiums or inflation linked premiums.
Do you perhaps have more information pertaining to this story? Email us at krugersdorpnews@caxton.co.za or phone us on 011 955 1130.
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