Life Insurance vs. Funeral Insurance
It’s natural to want to protect your family, and insurance may already be a part of that plan. Car, homeowners and health insurances are just some of the ways families help shield themselves against worst case scenarios. But what about other tragedies that might strike unexpectedly?
It might not be pleasant or easy to think about one’s own death, but dying is an unfortunate fact of life. Even more unfortunately, a loved one’s passing could place those left behind in a precarious financial position. Loss of an income, debts left behind or the cost of planning a funeral are just some of the money issues that are sometimes faced when a family member passes away.
Thankfully, there are products available to help people plan for these situations. Life insurance and funeral insurance could help grieving families carry on with as little disruption to their everyday lives as possible. Here is brief overview of these types of insurance, and how they might form a part of someone’s financial protection strategy.
Life and Funeral Insurance: The Basics
Though life and funeral insurance are different products, they do share some similarities. Both life and funeral cover offer a lump sum payment (known as the “benefit”) to a person or persons of your choosing, usually once you’ve passed away. To be eligible to receive the benefit, policy premiums must be paid. There are usually some other criteria that must be met as well, such as being outside of any relevant wait periods or providing relevant documents, as requested.
Like other types of insurance, life and funeral cover are not investment or savings plans. If your policy is cancelled, you generally will not receive a refund of the premiums paid, even if no claims were made during that time.
How do Funeral and Life Insurance Differ?
While funeral and life insurances are similar, they do differ in some key ways. The main differences are in the amount of cover available and when each type of policy pays the benefit.
Life insurance typically offers higher levels of cover than funeral insurance does. This is because it’s designed to provide longer-term support for families who have lost a loved one. The benefit might be used to pay down large debts, replace a lost income or otherwise maintain their standard of living.
Funeral insurance, on the other hand, generally offers lower amounts of cover. Whilst funerals may be expensive, they are thankfully a one-time expense. Families generally need less to cover the costs of the service and burial, though the money can be used for other things, such as paying final debts or covering household expenses whilst they grieve.
Funeral insurance is only paid upon the insured’s death. Life insurance also pays the benefit when the insured dies, but may also pay out if they are diagnosed with terminal illness. Depending on the insurance company, both types of policies may offer optional extras to increase the benefit amount in certain circumstances. This might include if the insured is seriously injured in an accident.
Who Might Benefit from Each Type of Policy?
There are no hard and fast rules when it comes to choosing an insurance policy. People often consider many different factors, including their personal circumstances and budget. However, knowing the particulars of each type of policy may be helpful when making a decision.
A common use for a life insurance benefit is to pay off large debts, such as a mortgage, should a breadwinner no longer be able to provide a paycheck. For this reason, younger adults and couples may find life insurance to be a better fit than a funeral insurance policy. The larger payout could help families keep their home, as well as pay for things like school or university fees, for a longer period of time.
Those with no debts or grown children may find a funeral insurance policy to be more appropriate. The benefit amount may be smaller, but could be sufficient to meet financial obligations, including the cost of a funeral, that could be left after one’s death.
Policy requirements and how the application process is structured may also play a role in someone’s decision. Funeral insurance is generally guaranteed acceptance, meaning that no health questions are asked when buying a policy. This might make these policies more attractive to someone with a health condition who might otherwise be ineligible for many life insurance policies. However, the tradeoff for this may be higher premiums or longer waiting periods.
On the other hand, someone who is younger and relatively healthy may not mind providing their medical history when applying for life insurance. This extra level of detail could help insurers better understand the risk of providing them with a policy. As a result, the person may be offered lower premiums or a policy with fewer health exclusions.
Protecting Your Family
An insurance policy—whether it be life or funeral cover—could provide you and your family some peace of mind should the unexpected happen. Finding the policy that’s right for you may take some time, but could mean a world of difference for your loved ones. Before taking out a policy, take some time to consider your personal circumstances, needs and budget to help find the best fit.