Charné is a Registered Tax Practitioner and has written several magazine articles with financial related themes since 2006. She is a known finance and tax expert working as an adviser at lemons into lemonade financial planners cc.

You will need life cover to pay for your funeral, debt and give your family an income when you die.

It is important to know the difference between standard life cover and funeral cover and also how to calculate the amount of life cover you or your family need.

There are 4 differences between life cover and funeral policies:

1.    Standard life cover and funeral cover both pay out when you die but funeral cover is normally more expensive than if you had taken that same amount out as standard life cover. It is more expensive because it pays out so quickly.  

2.    Funeral cover pays out with very little paperwork or questions about how the person died. In most cases, you only need a valid death certificate to claim.  Standard life cover goes through a claim process where you complete forms and provide medical reports and details of how the person died.

3.    In most cases, funeral cover are for smaller amounts (for example R20,000) where a standard life cover policy will be for a much bigger amount (for example R250,000).

4.    Funeral cover is available for you and your entire family all on one policy. Standard life cover is mostly for one person or for a married couple.

Let us first take a look at funeral cover and 3 things you need to know about it:

1.    What it should cover. A funeral policy must cover at least the costs of your funeral, burial or cremation. It sometimes can also help with costs to move your body closer to where the funeral will take place.

2.    Where you get funeral policies. You can take out funeral cover directly from funeral homes or take it out as an extra benefit on your life and disability policy. If you earn a salary and have group benefits at work, then check with your employer if you have funeral cover as part of your benefits. You can take out as many funeral policies as you can afford.

3.    Who funeral cover will pay out to. It is advisable to decide on a person who will handle the financial aspects of your funeral and to give that person the details of your funeral plan. You can also, on some policies, nominate this person as a beneficiary, so that the funeral cover can pay directly to him or her. It must be a person who is financially responsible and who will act honourably with money received in this way.

Now that we’ve looked at funeral cover, let’s look at standard life cover in more detail.

There are 2 main reasons why you and your family need standard life cover:

1.    Settle any outstanding debt. When you pass away, you don’t want your family to be responsible for any debt that you had in your lifetime. It will help them financially to be free of your debt. With many store or credit cards, you are also offered a product called “credit life insurance” which is advisable. This means that when you die, the full balance on that account will be paid. If you have a bond on your property or your car is still financed, make sure that it is fully paid when you die if you have a family or parents who can benefit from inheriting the house or car without debt on it.

2.    Provide an income for your family. If your income makes a big difference in the budget of the family, then you definitely need to consider taking out life cover and not just funeral cover. Life cover can be used to buy a property or invested to provide an income for your family. They can continue to pay important expenses like school fees, rent or municipality fees and electricity. It will help them maintain their lifestyle and help them not to make debt to pay day-to-day living expenses.

There are 3 things you need to know about life cover:

1.    Cost of life cover. Life cover can be very cheap cover if you are healthy. In some cases you will need to do medical tests when you take out the cover so that when you die, there are not so many questions about your medical background. Most of the time, the company where you take out the policy pays for these medicals. The cost of life cover is also not the same for everyone. The premium you pay every month is determined on various factors such as your age, your gender, your occupation, your hobbies (if dangerous) and whether you smoke or not.

2.    Who life cover pays out to. When a life cover policy pays out, it pays out to the beneficiary on the policy. If you did not appoint a beneficiary, then the proceeds will be paid to the person (or persons) who you have nominated in your Will. There is no right or wrong about who gets the money. It will depend on what is the best for your unique situation and circumstances. A financial planner will be able to give you advice on this in your specific situation. Just make sure that you don’t appoint children on a policy you take out in your own name because otherwise the money may go to the State Guardian Fund until the child is 18 years old. This Guardian Fund is like a big trust fund that the government manages for children. If you have group death benefits through your work, you need to appoint your financial dependants as the beneficiaries. On group fund benefits, you can appoint children under 18 years as beneficiaries because other rules apply than on a personal life policy.

3.    You need a Will. When you have debt or a family, it is not just advisable to have life cover, but also have a Will to make sure the life cover is paid out correctly.

There are 2 ways how to decide how much life cover you must take out:

1.    You determine it through an Estate Analysis. A financial planner will ask you for information on your expenses and debt and set up the analysis. It calculates exactly what your family will need to settle your debt and give them an income to maintain their current lifestyle. According to what is required, you can get quotes for a life cover policy from the same financial planner or directly at life assurance companies.

2.    Your budget determines the amount. Depending on what you can afford every month, you get quotes for it and compare them to see where you can get the highest life cover.

It is best if your life cover grows each year because living expenses get more expensive every year. Just make sure that your premium does not increase with more than what your income increases with. You may need to start with lower life cover but with a premium increase that you will be able to afford every year.

When you use a broker, always remember never to sign empty forms. It must be fully completed before you sign. Check the content and make sure you understand what you agree to. Ask for copies of any forms that you sign.

If you can afford to take out life cover, it is a form of showing love to your family by making it easier for them to make financial decisions when you are no longer there to provide an income for the household.

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