Care for your loved ones

19 Jun 2013

It’s not something that people really like to think about, but it’s definitely a necessary topic to consider, as we get older. If you died, would your family be able to shoulder the expenses of a funeral? And what would happen to them financially, do they have enough for any dependents to cope?

Life insurance

When you purchase a life insurance policy, you’re essentially given 24/7 cover worldwide in case of death or diagnosis of terminal illness. Life insurance cover also potentially comes with a built-in funeral advancement benefit, providing an advance payment of 10 per cent of your policy for any immediate funeral expenses. But this may be capped at $20,000. 

Essentially, life insurance gives you peace of mind should anything happen to you, with regards to your family being looked after.

According to Russell Cain, CEO of xLife, a life insurance comparison service, currently there is only Term Life Insurance on the market. “Whole of Life Insurance policies, which have both an investment and insurance component, were previously available, but these are no longer sold. In fact, Term Life Insurance is generally far cheaper than Whole of Life policies,” he explains.

While these are no longer available, Russell says it may still be beneficial to hold onto this type of policy, if you already have one. 

“If you have a Whole of Life policy, they are certainly still a valid policy and should be held onto. However if you have any concerns, it is always important to speak to a professional about your options.”

Funeral insurance

Funeral insurance provides loved ones with a lump sum upon your death to deal financially with expenses that will arise from funeral arrangements. Again, the cover is worldwide and 24 hours a day, however it generally only provides a benefit of up to $30,000. Also, only accidental death is covered in the first 12 months of taking out your policy. 

Russell says that there are currently two types of funeral policies available.

“Currently funeral insurance policies available include standard funeral policies which pays a lump sum benefit when you pass away and policies where your premiums payable are capped by your sum insured.”

Which one?

Most over 50s would have already thought about life and funeral insurance at this stage in their lives. But what if you haven’t? 

A life insurance policy is the way to go if you want to make sure your family is catered for financially. “A life insurance benefit can help pay for any outstanding mortgage and other debts as well as providing additional funds for your beneficiaries,” says Russell. “It can also be used to help pay for a funeral.”

However, don’t despair if you are unable, for whatever reason, to take out a life insurance policy. “A funeral insurance policy may be more appropriate for you if your debts have been paid or if you only wish to have a small amount of cover,” Russell says.

Making sure it goes to the right place

Your life insurance benefit will go towards your nominated beneficiaries. These are nominated at the time of application but they can be changed and more can be added at a later date. If no beneficiary is nominated, the benefit may go back to the policy owner. If the policy owner and the insured are the same person, the lump sum benefit may go to the insured’s estate and could be distributed according to your will.

There is no legal limit to the number of beneficiaries that you nominate, but according to Russell five is the industry standard, and it can be anyone you choose. “A beneficiary can be a person such as a family member or loved one, a trust or it can go to a company or charity if you wish to leave money towards an organisation which was important to you.” 

You also nominate the percentage of the benefit that goes to each beneficiary at application.

When it comes to funeral insurance, the benefit will go the nominated beneficiary. However, make sure you nominate one because if no beneficiary is nominated, the funds will go back to the policy owner.

No one will receive the benefit however, unless the claims process is followed. The insurance provider sets this out, and it generally means filling out a claim form and providing a death certificate to the provider.

According to the benefit provided, a life insurance policy technically outweighs the benefits of funeral insurance. However, when it comes to anything insurance, it’s always important to talk to someone, whether that is an advisor or the policy provider. “Everyone’s situation is different,” Russell says. “It is always best to speak to a professional before making any decisions.”