Are Funeral & Burial Insurance Really Worth It? - Deploying Your Money (2024)

by Nyiko Mongwe | Mar 7, 2019 | Estate Planning, Financial Freedom, Insurance | 0 comments

If you are a regular visitor of my blog you will know that I am a firm proponent of hedging as part of sound financial planning, thus,in my opinion, your financial portfolio is never sound or complete if you don’t have insurance products in place.

This being said, it is probably worthwhile to note that funeral and burial insurance are priced quite differently from Life Insurance.

In my article, Is Insurance a Waste of Money?, I explain my take on Life (Long Term) and Vehicle (Short Term) Insurance.

In this article I show that, in the case of Life Insurance, even if you were to start contributing to a Life Insurance policy at a young age and live to reach your life expectancy, the healthy individual would typically only have paid in premiums about 20% of the insured amount for the entire duration of the term. To me, this is tantamount to buying money. Given that we are all going to die, this is a no-brainer.

In the case of funeral and burial cover though, this is not quite the case.

Upon writing this post I got a quick online quote to use as a reference to illustrate a principle. I used age 64 because this particular insurers maximum entry age is age 64.

About $1,400.00 worth of funeral cover would cost a 64 year-old $6.30 per month. Said differently, should this individual live to a life expectancy of 85, a total amount of about $1,600.00 (premiums may increase over the years, but so will cover) would have been collected in premiums only during the retired portion (20 years) of their lives.

This, to my mind at least, does not seem to be the best use of money.

All the insurer is doing in this case really is facilitating your savings plan. The crazy part is that they have the added advantage of being able to pocket all your money if you were to default on your monthly contributions. This is silly and giving them this power could not be in your best interests. There are better ways to go about making provision for funeral costs, but one would first have to consider who it is that is looking to make the provision for this event.

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In this case, you need to be careful to use a vehicle that will be easily accessible to your loved ones in the event of your death.

Some investment product types may take a while to release proceeds to your surviving family members even if they have been appointed as beneficiaries, while others will have no beneficiary option and will form part of your estate and will only be accessible long after the burial ceremony has taken place.

Thus I recommend a funeral portion that is attached to a life insurance policy. These would usually make a portion of the insured amount available as a funeral benefit within 48 hours of providing the insurer with a death certificate. This is very helpful especially if the circ*mstances surrounding your death would need to be investigated before the release of the Life Insurance portion of the proceeds of the policy.

Life Insurance would be the best case scenario, but for those who don’t qualify for Life Insurance due to health, using an endowment policy as an investment vehicle is the next best option.

This option is great as it allows you to appoint beneficiaries, removing the risk of these proceeds falling to your estate. Money left in a bank account, mutual fund (unit trust), ETF or share portfolio would most likely form part of your estate in the absence of a will (technically it will still form part of the estate even with a will, only it will be bequeathed as per the instruction of the testator, the deceased). If a will has been drafted, it may not be accessed and assessed soon enough to release funds for burial purposes.

Thus an endowment is the best vehicle of choice. An endowment will allow you to appoint beneficiaries for the proceeds of your investment in the event of your death. These proceeds can be made available to your nominated beneficiaries even if your estate has not been wound up yet.

My opinion on this matter is to get a quote from an insurer based on the amount that you anticipate you would need to spend on a funeral.

I would take the monthly premium amount and contribute four times the quoted amount towards an investment earmarked for the same purpose instead. If you go this route, within five years you would have contributed (without factoring in investment growth) enough for the funeral and also have the liberty to stop contributing towards the fund and just allowing it to grow from this point on.

At this point, you would have also contributed in monthly premiums the same amount you would have contributed if you kept this policy with an insurer for 20 years without claiming, only, if for some reason you stopped contributing to a policy, the insurer wouldn’t owe you a dime.

You could also just keep contributing to this fund and turn it into a general family funeral fund knowing that after every five years (without factoring in investment growth) you would have saved up for a funeral, at your own pace and preference.

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Terminal illness, in my opinion, is the best application of funeral cover.

Terminal illness is the single exception I would, personally, make for purchasing a funeral or burial policy.

Generally, no underwriting is done for funeral policies (in other words, no medical assessments). This would be a good way to buy money.

Be cautious to carefully read the policy documents. Even though they may not ask, their contract may still have a non-disclosure clause. Most insurers will gladly accept your monthly premiums only to tell you at claim stage that the contract is null and void due to non-disclosure. You wouldn’t even be entitled to a premium refund.

Sounds like a paradox, but death is a part of life as we know it. I don’t have to be a prophet to know that you or your loved one will die at some point.

What we don’t know in most cases is when death will creep up on us or a loved one. Since we all know that it will happen and that this will have financial implications, we may as well just be prepared for it. It is only sensible.

Check Out My Financial Freedom Series:

Here’s a quick overview of the series:

• 1: What Financial Freedom is NOT
• 2:
• 3:
• 4:
• 5: Why Your Financial Advisor Can’t Help You Achieve Financial Freedom
• 6: The Importance of Credit on Your Path to Financial Freedom
• 7: