Master of Money Management

Death is a costly affair

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The one thing that life and death have in common is that they are both costly affairs. One event is clearly more fun than the other but both come with a fair amount of ceremony and ritual. These ceremonies such as christenings, baptisms and funerals all cost money, cash that we have often not budgeted for. At least we usually know 9 months before a baby arrives but death on the other hand, can take us by surprise.

Because the time of our death is not something we can accurately predict, we should be financially prepared just in case it sneaks up on us when it’s inconvenient. People who are working and can afford the premiums, may choose to take out a life insurance policy in order to financially protect the people they leave behind.

Unfortunately many individuals can not afford life cover so they take the next best thing, a funeral policy. A funeral insurance policy seeks to provide affordable cover for the paying of funeral costs either individually or through membership of a group that is formed for this purpose. The person purchasing the insurance will be required to pay a monthly fee every month which can start out as little as R40 per month depending on how much cover is requested.

One of the reasons you need this kind of cover is that often when you die all assets and bank accounts are frozen. Your funds only become available to your dependants and/or beneficiaries once an executor has been appointed. This normally takes at least a month. Burial, however, usually happens within a couple of days, and your family will need the money far sooner than it will be released from your estate. Funeral cover is available almost immediately after your death, in most cases within 48 hours. The money is paid to the beneficiary named in the policy.

So how much do you need? Well, there are two key factors when deciding on an appropriate level of funeral cover:

The cost of the funeral, and provision for deathbed expenses.

The cost of a funeral is relatively easy to determine; much depends on how you want to exit from the world. You may want the philharmonic orchestra playing in the church and your friends and family to enjoy champagne and caviar. This will obviously cost more than Aunt Lindiwe singing a tune, and a few snacks. Coffins also come in different price ranges. However, deathbed expenses are not as simple to calculate if the process takes a long time as a result of an illness or perhaps a car accident.  So you may also want to make provision for medical or hospital expenses at the time of your death as well, especially if you do not have a medical aid. If you do not, the burden of paying your hospital bills may fall on your family. As with any product of this nature it is advisable to seek the services of a reputable financial advisor.

Beware of unscrupulous persons claiming to represent the funeral policy business. Especially where cover is provided on a group basis, and sales and administration are typically outsourced to a third party administrator. The above-mentioned abuses are due to the resulting separation between the insurer and customer. You need to make sure that the seller of the policy is registered with an insurer and the intermediary is registered with ASISA. The seller must have documentation to prove this.

You need to see proper papers as to where the policy will be placed. This is to check whether the policy is underwritten. In other words, which insurance company the policy will be taken from. If your policy is not underwritten by a registered insurer, it is invalid even though you may be paying money towards it every month.

Once the policy has been issued, you as the policyholder must get a summary of the conditions and requirements relating to the policy. When you are taking out a funeral policy under a group scheme, do find out about anything and everything that can affect your cover and payment of the claims.

A policy certificate must be issued and given to you, the policyholder, with information about the person or persons who are covered in terms of the policy, the amount of cover, the net premium, the total amount to be paid out as well as a clear breakdown of costs and the reasons for everyone of these costs.

Ensure that you receive a receipt for every cash payment you make towards the policy premium every month. The receipt must have the information of the insurance company that has underwritten your policy.

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