For so many people, things can get a little bit confusing when it comes to knowing the differences between Life Insurance and Funeral Cover. Where does the one begin and the other end? How can these different types of cover benefit you or your loved ones, and which is best for your needs?

Here's the simple explanation: 

Funeral Insurance will cover many, if not all of the costs leading up to, and including, a funeral and the burial or cremation. Life Insurance, on the other hand, takes care of the people you leave behind after passing away.

Of course, there's a lot more to it than that, so let's jump right into it.
 

Death comes to us all. We may not like to think about it much, but the reality is that at one point or another we all lose our loved ones and that we, ourselves, will also pass away. Sometimes we will be afforded the opportunity to plan for this event, and at other times it is both tragic and unexpected. 

We can’t predict how or when we are going to die, but we can ensure that the people we leave behind are not overly burdened while bereaved. In this aspect, Funeral Cover has a lot in common with Life Insurance, in that it significantly reduces the financial burden shouldered by those trying to honour the memory of the person who passed away. 

The cost of any dignified funeral could place significant financial strain upon you or your family. As we've mentioned in another article linked above, funerals are incredibly expensive, and many people would struggle to pay for them out of pocket. 

Funeral Cover ensures that a lump sum is paid out upon the death of the insured person. This allows the beneficiary – often a spouse or a family member – to cover all necessary costs. Certain insurance providers also offer additional benefits during this trying time, such as assistance with funeral arrangements and even trauma counselling for the family.

Where Funeral Cover differs tremendously from Life Insurance, however, is that the financial relief provided by Funeral Cover is short-term, for smaller, more immediate payments. This could pay for anything from the aforementioned funeral ceremony, burial or cremation, the coffin, flowers or catering. The sum is usually paid out within 48 hours once all the necessary documentation (such as the death certificate, etc) has been provided. 

It can be seen as an incredibly useful emergency fund, for when tragedy strikes out of nowhere. Life Insurance, on the other hand, answers the long-term questions.
 

The grief of losing a loved one is often heightened by the task of having to tie up all the loose ends that person may have left behind. Life Insurance provides a long-term safety net to our loved ones when we die, become seriously ill or develop a life-changing disability.

The payouts from Life Insurance enables those people to continue living a comfortable life without having to worry about that sudden loss of income. It could be used to cover anything from day-to-day needs, education, medical expenses, businesses operations or any possible debt left unattended to.

Life Insurance payouts are far more substantial (commonly around three times your annual salary) and allow the choice of one lump-sum being paid out, or providing a fixed monthly income to your beneficiaries. These payouts may take some time, though - anything between a week to a couple of months.

The payout amount can often be increased, though, at higher monthly premium rates. Because illness and disability is also taken into account, Life Insurance premiums are determined by your risk profile (lifestyle, health, age, gender, and occupation), much the same way that vehicle insurance premiums are calculated, whereas many Funeral Cover options are set at a fixed rate for all.   

Unlike retirement funds, or any other funds that form part of your estate, Life Indurance does not require an executor or trustee to sign off on payment. 

Did you know that if your last will and testament says; 'Give everything to my wife', this will exclude any life insurance policies if she has not been named as the beneficiary, and your mother, for example, has. All payouts will be made to, and only to, the beneficiary you have named. In this regard, insurance policies are so powerful and iron-clad that what is stated within them will override your very own will. 

For this reason, we need to decide wisely, and be sure to update any new information with your broker.

When your loved one passes away, the first thing that you should do, in terms of settling all the financial affairs, is find the will and testament of the deceased. This may indicate certain wishes to be fulfilled, or arrangements to be made, for the funeral and how they wish to be laid to rest.  

The undertaker will usually arrange the death certificate, and if not, you can get a copy from Home Affairs. To claim for funeral cover, you will need this death certificate, a copy of your ID, a copy of the deceased's ID, and all policy details. To claim from life insurance, you will need all of the same, as well as your marriage certificate if you are the spouse, and a medical report in the case of death by natural causes.

If the death was unnatural, such as suicide or murder, you'll have to obtain the investigating officer's report, the postmortem report and sometimes even the inquest report. 

The deceased's bank account will also be frozen, and in order to obtain a letter of authority to the bank, instructing them to close the account and pay out funds to the executor of the estate, you'll have to report the death to the Master of the High Court. You can do this via your local magistrates’ office at no cost.  

When it comes to spending the money being paid out, it's important not to blow it all at once. This is a safety net, and not a gift. Instead, opt to reinvest, and grow the money in a unit trust fund. Or, if children are involved, it could be put to a good education, or education policy. This will ensure that the money can grow over time, and provide for your family for as long as possible.  

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