Life Insurance vs Funeral Cover

A funeral policy averages R85-R300/mo and pays out R10k-R100k within 48 hours. A life policy averages R280-R1,200/mo and pays R500k-R10m. They solve completely different problems - and most SA households need both.

The two purposes

| Funeral cover | Life cover
Purpose | Pays the funeral within 48 hours | Replaces lost income for dependants
Payout | R10,000 - R100,000 | R500,000 - R10,000,000
Underwriting | Minimal - usually age + smoker | Full medical, financial, occupation
Waiting period | 6 months natural causes | None for accidental; 2 years for suicide
Speed of payout | 24-48 hours | 30-90 days

How to size your life cover

The South African rule of thumb is 10-15x annual income, but a needs-based calculation is more accurate:

Outstanding debt (bond, vehicle, credit) - paid out in full.

Education for each child to graduation - approx R450k-R800k per child for private SA university.

Income replacement for surviving spouse - typically 70% of current income x years to retirement.

Estate costs - executor fees, estate duty, capital gains tax (often 6-8% of estate).

Tax treatment in SA

Life policy payouts are tax-free to nominated beneficiaries and fall outside the estate for executor's fees if a beneficiary is nominated. Funeral policy payouts are tax-free. Both pay outside the deceased estate when properly structured.

The cheapest layered approach

Funeral plan covering main member, spouse, four children: R180-R280/mo for R30k-R50k each.

Pure-risk term life on the primary income earner: R350-R650/mo for R3-R5m.

Optional disability and severe illness rider: adds R140-R300/mo.

Common pitfalls

1) Buying whole-life when term-life delivers the same protection at a third the cost. 2) Naming "the estate" as beneficiary instead of individuals - triggers executor fees and delays. 3) Cancelling old policies before new ones are in-force - waiting periods restart. 4) Forgetting to update beneficiaries after divorce - SA law does not automatically remove a former spouse.