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Funeral Insurance
Sunday, July 1, 2007
Grave concern

Mention funeral cover in a conversation and you are likely to trigger accounts of how family members or friends were let down when they needed it most.

John Solomon, convenor of the Assistance Business Standing Committee at the Life Offices’ Association (LOA), says when faced with an intensely stressful situation like the death of a loved one, the last thing anyone needs is added financial stress because the funeral cover refuses to pay out.
“But,” he adds, “there is a lot that consumers can do to ensure there is reliable funeral cover in place, either for themselves or family members.”
The first step is to understand the different kinds of funeral cover available and the risks associated with these options.
Funeral policies. Only life insurance companies registered with the Financial Services Board (FSB) can sell funeral policies. These are available from financial advisers or from some funeral parlours. Very often life companies outsource the administration of these policies including premium collections and claims payments to administrators.
Funeral policies are regulated by law and life insurance companies selling such policies must comply with the Long-term Insurance Act.
Mr Solomon explains that the biggest risk when buying a funeral policy is that the adviser selling it does not disclose important information such as exclusions and waiting periods.
“For these reasons it is very important that you familiarise yourself with the policy contract. If, for any reason, you feel that the policy sold to you does not provide the cover you expected, you may cancel the policy within 30 days of receiving the contract.”
Burial Societies. These are not regulated and membership usually consists of a group of people from the same community who know each other well and who trust each other. A burial society encourages members to save a certain amount every month for when funds are needed to bury a loved one.
These societies also provide their members and relatives with emotional and logistical support when faced with losing a family member.
Mr Solomon says a burial society is best described as a stokvel for burying people. “Short of the treasurer absconding with the money, not much can go wrong.”
Friendly Societies. These must be registered with the FSB and may only provide funeral benefits of up to R5 000. Usually established by churches, trade unions or even companies, they must be run on a non-profit basis, may not market their products, and may not appoint full-time employees.

Illegal funeral schemes

There are many funeral insurance schemes, often run by administrators or undertakers, which are not registered with the FSB and are not underwritten by a registered insurer.
Although some of these schemes have served their communities well over long periods, there are also many that have not. Mr Solomon says consumers need to make sure that their cover is underwritten by a reputable insurer, because this will ensure that the necessary funds are in place to back claims.
“If you are in any doubt, demand the appropriate documentation proving that you are dealing with an underwritten scheme and a licensed intermediary. If you are still not happy contact the FSB.”

Picking the right funeral cover

As with any financial product, your needs should determine which product you should opt for.
Mr Solomon says there is nothing wrong with choosing a burial society if it makes you feel comfortable and helps you build up enough funds to be able to afford the type of funeral you would want for a loved one.
But if you prefer the financial security that a licensed insurer can provide, a funeral policy is probably your better option.
Often, he explains, consumers opt for both a burial society as well as a funeral policy. The former offers immediate emotional and financial support when a family member dies, while the cash lump sum from the funeral policy is often claimed after the funeral.
Funeral policies typically offer benefits of up R20 000 or more (assistance business offices are currently limited to R10 000 per policy). But, he advises, make sure that you understand the terms of the policy.
“Some policies come with waiting periods of six month periods, while others impose waiting periods of up to one year. Also, people often forget that their children are only covered until they are 18, or 25 if they are students and still financially dependent on their parents.”
It is important also to remember that the LOA, to which most life companies belong, has banned the use of HIV/Aids exclusions.
You need to remember to revisit your funeral policy, or the policy of a loved one, from time to time. The importance of this is highlighted by a recent example where a grandmother died while in her 80s. Her family knew that she had a funeral policy, but did not realise that she had taken it out in 1968 for a monthly premium of just R2.05. While her humble funeral last year cost more than R6 000, the policy paid out only R200.

Protective measures

To help consumers protect themselves, the LOA introduced Zimele earlier this year. It is a Zulu word meaning “to stand on your own two feet”, and is a brand used by a number of life companies to help consumers identify products, such as funeral cover, which guarantee fair charges, easy access and decent terms.
Mr Solomon says provided a policy document displays the Zimele stamp (two hands in orange and brown) together with the issuing life company’s brand, consumers will know that the product meets the minimum protection requirements.
One of the most significant protection measures offered by funeral policies carrying the Zimele stamp of approval is the fact that policyholders will be given a one month grace period should they pay a premium late. Better still they will be credited with a month’s premium for each 12 months the policy has been in force. This helps greatly in covering the odd missed premium.
Where a policy has ceased because premiums were not paid, policyholders will be allowed to reinstate it once without any new requirements such as waiting periods provided this is done within three months from the date of last premium payment.
The Zimele product standards for funeral products also stipulate that accidental death cover must commence on receipt of the first premium - no waiting periods may be applied. Only a two-year suicide exclusion will be allowed and a temporary natural causes waiting period of a maximum of six months. In the case of parent cover a 12 month natural causes waiting period may be applied.
Also, all payments must be made directly to beneficiaries, and not to undertakers.

Tips to ensure you are covered

Make sure that the person selling you the policy (referred to as the intermediary) is licensed by the Financial Services Board as a Financial Service Provider (FSP) or is a representative of an FSP accredited to market the products of a registered life company. The intermediary must be able to prove this. You can check this against the LOA Intermediary Register on www.loa.co.za or call the association on (021) 421 2586.
To confirm that the company whose policy you are being offered is indeed a registered long-term insurer, contact the Financial Services Board on 0800 110 443.
If the policy is underwritten by a registered life company, the intermediary must be able to produce marketing material from that company providing more information about the policy you are about to buy.
Once the policy has been issued, you must be provided with a summary of the conditions and requirements relating to the policy. You then have 30 days in which to change your mind.
Make sure you receive a policy certificate with information about the person or persons who are covered in terms of the policy, the amount of cover, the premium, as well as a clear breakdown of costs.
Ensure that you receive a receipt for every cash payment you make towards the policy premium every month. The receipt must display the information of the insurance company that has underwritten your policy.

Copyright © Insurance Times and Investments® Vol:20.6 1st July, 2007
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