Do you want to create generational wealth? You’re not alone! In fact, 91% of South African consumers said it was important to them too.
But where do you start? Thirty-eight percent of consumers believe funeral cover can help build generational wealth. But is this a good way to go about it?
We took a close look at funeral policies to find out if they can create generational wealth, or if there are better alternatives. We found that although funeral cover can make sure your family doesn’t go into debt when paying for a funeral, it’s unlikely to give them a secure financial future. Life cover is a better option to use to create generational wealth – for two important reasons.
1. There is a limit on how much funeral cover you can take
1Life funeral policies offer up to R50 000 cover. This will pay for a funeral, perhaps some extras such as small medical bills, and a memorial. That’s all. You can, in theory, take another policy and increase your funeral cover to R100 000. This may help your family with some extra expenses, but it is unlikely to be enough to create a lasting financial legacy that many generations can benefit from.
Life cover, however, has much higher limits on the sum assured. With 1Life you can take up to R10 million life cover, giving your family a far larger and more substantial pay-out they can use to pay any debts such as a home loan. This would give your loved ones a paid-for property they can pass on to future generations. They can also use a pay-out to pay for education and other wealth-building activities such as starting a business.
Bottom line: Use funeral cover to cover the cost of a funeral and memorial and use life cover to leave to your family to build their generational wealth.
2. You can only name one beneficiary on your funeral policy
The beneficiary you have named on your funeral policy will receive the sum assured on your passing, for a valid claim. You cannot name more than one beneficiary on your 1Life funeral policy, so only one person will receive the pay-out. They can use this amount as they see fit. Sadly, not all beneficiaries share insurance pay-outs even if the intention is that they are shared equally among family members.
If you want to split the pay-out from an insurance policy among your children and spouse, you must use a life insurance policy. You can name more than one beneficiary on life cover policies and stipulate how much of the pay-out they receive, either in Rands or as a percentage.
For example, if you have a spouse and two children, you can name them all as beneficiaries on your life cover policy and stipulate the amount they receive. Your spouse could receive 50% of the sum assured, and your children 25% each.
Don’t I have to answer lots of medical questions and have medical tests for life cover?
If you dislike underwriting and medical questions and medical exams – many of us do – funeral cover might seem like a good alternative to life cover. There is no underwriting on funeral policies. They really are quick and easy to take out.
But so is life cover! Life insurance with 1Life does require you to answer some medical questions truthfully and accurately. You also need to take an HIV test if you want to be covered for death due to natural causes such as cancer, heart attack, stroke and COVID-19. The HIV test is a simple saliva swab, which you can do at one of our partner pharmacies. It’s quick, easy, and there are no needles! We use this information to underwrite policies, which is where we assess the risk of you becoming ill and/or passing on sooner, or later, than expected.
Although you need to share more information with us to take out a life cover policy, there is a benefit. Because our life policies are underwritten, we can offer you an appropriate amount of life cover at the lowest price possible. This makes premiums for the same amount of life cover more reasonable than premiums for funeral cover.
Funeral and life cover both have an important place in your perfect plan
Funeral policies are ideal for what they are intended – paying for a funeral so you and your loved ones have a dignified burial. They pay valid claims within 48 hours. They also allow you to insure family members and extended family members on one policy, which makes keeping up to date with premiums and admin a lot easier. But your funeral cover policy was not intended to help your family build generational wealth and isn’t suited to this purpose – that is the role of life cover!
Source: 1Life Generational Wealth Survey