This is a contract offered to an individual seeking to cover themselves or their loved ones against the financial consequences that ensue in the event of the death of the insured individual. The insurer makes a commitment to pay out a lump sum amount as a benefit known as the sum assured to a policyholder’s chosen beneficiaries. Although usually offered to a single life, some may be priced such that the policyholder’s spouse is also covered under the same policy, which is called a “joint” whole life contract.
This contract is taken up solely for the purpose of reducing the financial strains that come with processes involved in making sure that a loved one is given a decent burial. The selected beneficiaries of the covered live(s) are entitled to lump sum pay outs and/or services upon death.
What makes them look Similar?
Benefits payable – Both contracts pay out a lump sum amount upon death of the covered life. The contracts may also be priced in such a way that the policyholder participates in the product’s profit contribution to the insurance company. The profit will be mentioned in the terms and condition as it may be investment, underwriting or a combination of the two.
Zimnat Life Assurance recently launched two products in March 2021, “LifeCare Plan” and “Security Plan”. These products offer policyholders an opportunity to participate in sharing profits realised from the sale of the policies. These contracts are designed in such a way that the insurer promises to give “rewards” if the pool of funds in which premiums are invested in performs, these rewards may be in the form of a lump sum pay-out, premium waiver or an escalation on the sum assured depending on the design of the product.
Eligibility – Almost all insurance contracts can be offered to anyone between 18 and 65 years.
Premium frequency – The insurance benefit is offered in exchange for a premium , the rate at which premiums are paid may also vary from monthly, quarterly and bi-annually.
Premium payment period – Depending on the contract, the contributions towards cover may be paid for a set period, this type of contract is called Whole life with Limited Premium Paying Term, while some may require one to pay in perpetuity until death.
So how are they different?
Usage of pay out – Life insurance cover proceeds may be used to meet inheritance tax liability when winding up the estate of the deceased or to pay off any loans or mortgages that the insured had. It may also be used to purchase an annuity that will be used to pay schools fees amongst other uses.
For a funeral contract, a lump sum is usually paid immediately (within 24 hours of notification) on death to cover all the necessary funeral logistics. So in essence the life insurance contract is taken by the insured so that (s)he safeguards the well-being of those that (s)he leaves behind, while the funeral contract is taken by the insured to make sure that those left behind do not have to worry about financing a proper send off for their loved one.
Magnitude of Sum Assured – a life insurance contract has a significantly higher sum assured value while a funeral insurance contract usually has a lower sum assured. This is mainly so because of the differences in purpose of the covers discussed above.
Underwriting – due to the differences in the sum assured each insurance type is subject to different levels of underwriting conditions. Since the life insurance contact offers a high sum assured the lives to be covered may be subject to medical inspection. Whereas the most common underwriting factor considered for a funeral insurance contract is age.
Benefit Options – Not only does the funeral insurance contract offer monetary benefits, the cover may also render services which include provision of body removal, funeral rites, transport and catering needed on the day of the funeral. In addition, the contract may further give a tombstone and unveiling service benefits. Zimnat offers such services through FSG Zimbabwe.
Lives covered per policy – With a funeral insurance contact one may also choose to cover more lives apart from theirs, these are called co-lives, the addition of these lives has a bearing on the premiums
In conclusion, when the purpose of something is unknown, abuse, overuse or no use at all is inevitable. My hope is next time you want to choose insurance for yourself and/or family, you will be well equipped by the information that has been availed, so that you make the best decision.