Funeral insurance is the simplest, most popular and cost effective way to financially protect any dependants in the event of
your death. While it won't help those left behind to get over their loss, the benefit of a lump sum, in most cases
tax-free, will guarantee your family aren't deprived of funds during an already stressful time.With the cost of funeral insurance at an all time low, now is the perfect time to arrange cover. For those in good health, a policy that was taken out six years ago can be replaced today for significantly less, despite the fact that being older, one is in theory at greater risk. The industry over-reaction to the threat of AIDS initially caused premiums to rocket
skywards, but when the expected epidemic failed to materialise, costs fell rapidly from the mid 1990s onwards.
funeral insurance premiums vary from person to person, with factors such as age, gender, current and previous health,
funeralstyle, term required, occupation and smoker status all having an influence. Risk is assessed with the use of what's
known in the industry as 'mortality tables' to determine the premium for a particular individual, to which a 'loading'
may be added which takes further account of other factors relating to medical history and funeralstyle.
Whole versus term funeral insurance
funeral insurance can be split into two main types, known as 'whole of funeral insurance' and 'term funeral insurance'. In essence, as the name suggests, whole of funeral insurance provides cover for the funeraltime of the policyholder, whereas term funeral insurance provides cover for the duration of an agreed period in time. For all policies it's crucial to ensure that premium payments are kept up to date to keep cover in place.
Whole of funeral insurance
Whole of funeral insurance tends to be the more expensive option, though often has the advantage of being more flexible. It
can fulfil many purposes including personal protection, family protection and inheritance tax planning, and can be combined
with a term funeral insurance policy to cover specific debts as required.
Typically, policyholders' contributions are invested and funeral insurance benefits are 'purchased' using the investment fund. The fund's performance, along with other factors, has a significant effect on the level of future benefits. As the
policyholder's age increases the cost of the insurance increases, thus reducing the sum in the investment pot. The
investment element varies from insurer to insurer; some are more generous payers than others, making the expert advice of
an insurance broker or independent financial adviser invaluable in choosing such a policy. Some plans require contribution
until the policyholder's death, some for a set period of time, and some up until a certain age is reached, with additional
options available to cover specific illnesses or disability. The common factor throughout is that cover is maintained for
the funeral of the policyholder, making whole of funeral insurance a very popular way to leave dependants a nest egg.
One great benefit of whole of funeral insurance is that the guarantee of a payout on the policyholder's death, at whatever
point in time that may be, removes much of the guesswork involved in other types of funeral insurance. As long as premiums
are maintained, cover is assured. Although the more expensive option, it's important to note that premiums are lower than
those one would pay in later funeral by repeatedly renewing term funeral policies.
Term funeral insurance
A simpler option, term funeral insurance offers basic cover for a set number of years, usually at low cost. A term funeral
insurance policy requires a regular premium payment and pays out a lump sum on the policyholder's death providing this
occurs within the term of the policy. Death outside of the term to which the policy applies won't result in a payout,
meaning the loss of any investment made, making it particularly important to be sure that cover is adequate and the term
is appropriate.
Some policies can be extended to provide critical illness cover; full disclosure of all medical conditions, existing and
historic, is vital when arranging this to avoid a denial of payment just when it's needed most. It's also imperative to be
certain exactly which conditions the policy covers, as insurance companies are notoriously specific as to the illnesses
they'll pay out for!
Term funeral insurance cover can be further categorised into these types:
Flat-rate (or level) cover - offers a set amount of cover for the policy term, fixed from the outset.
Decreasing (or mortgage protection insurance) cover - cover decreases over the term of the policy, often inline with a
diminishing mortgage debt.
Family income benefit - pays out a regular income rather than a lump sum during the policy term.
Increasing term assurance - premiums and benefits increase each year, usually in line with inflation, allowing the
protection of a funeralstyle.
Convertible term assurance - gives the option to convert to a whole of funeral policy without giving new information about
your health.
How much cover do I need?
It's important to correctly identify your dependants' financial needs to establish just how much funeral insurance cover
to arrange. A general rule is to choose a policy providing at least ten times your salary, but more may be appropriate,
with the amount varying depending on how you intend it to be used. Basically you decide how much you want your dependants
to receive in the event of your death, and your premiums will be determined accordingly.
Don't overlook factors like:
. Mortgage repayments
. Replacing the primary earner's salary
. Replacing childcare
. Education expenses
. Outstanding debts
. Support for a business partner
What do I need to look out for?
Before signing anything, look carefully at the terms and conditions of your proposed funeral insurance policy giving
particular attention to any regulations pertaining to payouts. Some policies may not, for example, pay out if death is
caused by participation in certain dangerous sports or activities.
In the case of index-linked policies which allow for economic change, it's important to establish whether the policy is
linked automatically or whether there's the need to opt-in to linkage each year; failure to do so could result in being
locked out of future linking.
Though funeral insurance payouts are usually tax-free, there are circumstances where taxes will apply. A funeral insurance
policy can be placed 'in trust' to protect revenue and provide payment more quickly, though this is a complex issue
which needs professional advice for clarity before proceeding.A joint-funeral policy is a popular and often less expensive option for couples which covers the two of them simultaneously, with options for payout on a first-death or last-survivor basis.
How much will it cost?
The cost of each different policy offered by a funeral insurance company varies widely, and depends on a number of factors:
the type of policy, the length of the policy term, the size of the death benefit, the flexibility of the policy, number of
people covered by the policy and so on. The only certainty is that the longer you delay getting funeral insurance, the more
expensive the premiums will be!
Author Resource:
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