As we enter into a new month, let us not allow the anticipation of the upcoming holidays to overshadow everything we have been consistently doing. Holidays are more fun when we have been working really hard. Speaking of holidays, it is sad that we still lose many lives during these times. Which is a clear indication that life is short and unpredictable. Please be careful and take care this year.
The reality is that we are not going to live forever therefore, all of us need to make proper provisions for when that time comes. As a reminder, the main purpose of estate planning is to ensure that you, your family, dependents, and nominated beneficiaries continue to enjoy the offerings of your estate and assets during your lifetime and after your passing, regardless of when death may take place. However, even with our estate planning on track, it does not completely overcome the issues surrounding the final burial preparations for the deceased.
We have come to learn that in our culture, family and friends contribute towards the costs of the funeral. But, some of us have in some way or another witnessed how funeral preparations and implementation can go wrong. From some individuals not wanting to contribute financially, to the community not assisting with the preparation of food because the deceased was never involved in their family gatherings. And the cost of a funeral nowadays can be very expensive. Rising funeral costs can also create a lot of tension between family members when it comes to contributions. Therefore, we need to work on better ways of reducing or eliminating this tension around that time whilst we are alive.
Our financial planning topic for this week is FUNERAL FINANCE: LIFE INSURANCE VERSUS FUNERAL POLICY. Both concepts form part of risk management strategies under estate planning.
Life insurance
· This pays out a lump sum in the event of our death.
Once again, life insurance is meant to cover our families from the loss of our income in the event of our death before retirement age or to cover our responsibilities until our dependents are of legal voting age.
There are two major types of life insurance cover policies, namely whole-life and termed-life. Whole-life insurance cover results in a lumpsum pay-out to our nominated beneficiaries in the event of our death at any point in our life. Most insurance companies use a base maximum age of 100 years old. Termed-life insurance cover results in a lumpsum pay-out to our nominated beneficiaries in the event of our death but only during the term we have nominated. Some people who opt into this type of cover option, feel confident that after a certain number of years, their assets will have accumulated enough to not need any risk cover.
Components of a life insurance policy
· Specified amount at death
· Disability cover before death
· Severe illness before death
Our monthly premiums are calculated using the components we choose to include into our life insurance cover policy. We may decide to over insure and have a larger pay-out amount than what we really need. And some of us even have multiple insurance policies currently in place.
It is common knowledge that the insurance industry has not always been fair to clients. Be mindful that the reason why a life insurance cover policy application wants to know our salaries and liabilities is to also estimate the amount of financial risk we are seeking to cover. However, the need for the insurance company to estimate this financial risk amount lies in the reasoning to continue to allow us to apply and pay for multiple insurance policies, with the intention to only pay up to the initial financial risk amount calculated. In some of these cases, insurance companies have also gone as far as to continue to enjoy the financial profits whilst legally not liable for any financial losses suffered by clients. Meaning that they have lawfully relieved themselves from taking any responsibility of the actions of the personnel that represent them. Did you know that this responsibility has been transferred to us the policy owners? Let us have the habit to fully read all documents we sign from this day going forth.
Should anyone have issues with their insurance policy, seeking help from the police, lawyers and the insurance company usually results in unfruitful efforts combined with further financial losses. Therefore, make your reports to the Ombudsman and NBFIRA. They are the regulatory parties that have the power to help us effectively and at no cost to us. Hopefully in the future, the law will advance to protect clients more.
Once again, there is no guarantee that the life insurance policy will pay out immediately upon the notice of our death. Thus, our family and friends will end up paying for our funeral and reimburse themselves once the insurance pay-out has been received. Our family and friends will also still have to choose the same components as in a funeral policy.
Funeral policy
· This pays out the actual funeral components in the event of our death
A funeral policy offered by the funeral homes are cost-effective because they are set at the manufacturing price. The concept of these funeral policies is for us to buy the components needed for a funeral with today’s price no matter the date of our death in the future. The advantage counters inflation such that the same coffin we buy today will cost us a lot more in the future should we choose to not buy it today. It is basically buying something today and using it in the future. Also, some us seek more financial support from burial societies and other cost-effective avenues which allow us to accommodate our family members.
Components of a funeral policy: coffin, tombstone, food allowance, transportation of deceased, mortuary services, and burial site and so forth.
Both a life insurance cover and funeral policy can be purchased with a lumpsum or in monthly instalments. With regards to monthly instalments, the benefits will still be paid out even if our premiums do not equal the pay-out benefit. Also, remember to tick off the option to stop monthly payments once your premiums have equalled the overall policy or package price. A life insurance cover is necessary for anyone with children or dependents however, we all need a funeral policy or make provisions for our burial. A funeral policy only caters to the burial and life insurance covers a lot more aspects of estate planning. It is up to you to decide the degree to which you use both these funeral finance aspects. We do know not what the future holds but we can live life today like there is no tomorrow with provisions made for both today and tomorrow.