What organisations should know about funeral insurance policies

In the South African market, there are three main forms of funeral cover. A large proportion of the population relies on stokvels, an informal scheme where people contribute a set monthly amount to a communal pool. However, this is risky as the person appointed to make decisions and manage the fund is not governed by law or regulations, and anyone who claims, has no control over how much money is allocated. Multiple claims in close succession also drain the pool and affect how much someone may get in return for their contributions.

Individual funeral policies are a better option as they're regulated. However, they generally offer fewer benefits than a group policy. Group policy premiums are often being subsidised by employers, which not only lowers their overall cost, but also means they can form part of a broader employee benefit (EB) scheme. It is also simpler to secure cover when offered as part of a group policy or EB scheme as the risk is spread over a larger pool.

This also means employees with larger families will get the same cover at the same cost for all direct family members. Additionally, equitable cover for all employees in the scheme is ensured, regardless of social standing or gross income, which offers a company a socially responsible approach to community upliftment.

There are also positive spin-offs for an employer as this type of cover helps to reduce the financial stress experienced by employees, should someone in their direct family pass away. However, knowing who is classified as direct family is an important distinction to make upfront in either a group or individual funeral policy to avoid disappointment at claim time. It is essential that the definition of direct family, particularly who constitutes a spouse, a child or a dependant, is clearly defined in the policy and is understood by the insured.

Broader definitions benefit the insured, but many insurers are quite specific. Most funeral policy claims that are declined are done so based on these definitions, as a life partner, grandparent, primary caregiver, adopted child or dependant may constitute direct family in certain policies, but not in others. These are the types of cases that normally end up at the Ombudsman.

Certain policies also pay out directly to funeral providers, which opens up the industry to abuse. Insurers and policy holders need to be clear on who the beneficiary is, especially as policies of this nature are aimed at reducing the financial burden of a funeral. This could include more than just the funeral itself, particularly as different religions and cultures have different requirements.

Lastly, it is essential that the policy holder understands when a claim may be repudiated due to a previous claim on the group scheme. For instance, a critical illness claim by the insured may preclude a future claim on linked life cover or a funeral benefit.