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## Funeral policies – the final scam?

18 September 2013, 12:17

Do you have a funeral policy?  If you do, do you know what the cash pay-out will be compared to what you are paying into the fund?

I have a policy that is offered by a major retailer as part of the account package.  I pay R22.50 per month for it, so far, which is payable until I turn 65.  In the event of my death, the cash payout will be R5,000.00.  All well and good, especially considering that I have twenty-two years to go till I turn 65. So…working out:

R22.50 x 12 =              R270 p/a

R270 x 22 years =        R5,940.00

Which means that I will pay in R940.00 more than the pay-out of R5000.00 in the event of my death.  (This is not worked out at the rate increasing exponentially every year).

I called around for some comparison quotes and the results were quite surprising.  Company X, a leading insurer offered me a payout of R20,000.00 in the event of my death at a rate of R62.00 per month. However these payments do not have an age cap, ie: I would pay till I die, whenever that may be. I worked out that if I died at the age of eighty-five (forty two years away) the calculations would be thus:

R62.00 x 12 =              R744.00

R744 x 42 years =        R31,248.00

Which means that I will pay in R11,248.00 more than the pay-out of R20,000 in the event of my death. (Again, not worked out at the rate increasing every year)

Company B, also a leading insurer offered me a payout of R10,000.00 for R60.00 per month in the event of my death. These payments also aren’t capped when I reach a certain age, so using the same calculations:

R60.00 x 12 =              R720.00

R720 x 42 years =        R30,240.00

The amount paid extra into this policy amounts to a whopping R20,240.00! Again, not taking into consideration that the rate will increase per annum. It’s also a lot of money considering the fact that R10,000 may not go very far in the year 2056.

Also, consider the following.  My 81 year old god-mother had a policy with company C that she took out when she was 68 years old, ie 13 years ago.  It had a pay-out of R5,000.00 in the event of her death.  The premium had increased to the extent that when she retired at 80 years old she could no longer afford it any more, so she was forced to cancel the policy.  Over the 13 years of paying this policy she had paid in R7,500. When the company was asked if a pay-out would be received on cancellation, the answer was an emphatic no. So in effect R7,500.00 was paid for nothing.

Calls to the company concerned and emails to the governing body had zero effect and we were told quite insistently that this was all completely above board.

In light of all of this, when taking out funeral policies the following should be carefully considered:

1.        The monthly premium as well as the percentage of

annual increase.

2.       The amount of the final cash pay-out

3.       Is the policy capped, ie is it payable till a certain age is reached or is it payable indefinitely?

Finally, find out from your HR department if your company has an existing staff funeral policy in place.  They’re usually, in a big enough company, at no extra expense to yourself.

Of course, this is all assuming that your family uses the entire amount paid-out for your funeral and doesn’t bury you on the cheap and pockets the rest but that doesn’t really matter because you’re no longer around, right? Right?

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