What's the main difference between Life and Funeral Insurance?
Both life insurance and funeral insurance provide a lump-sum benefit in the event of death or terminal illness but both products still offer different benefits that will impact your decision of what option to go for.
- Life insurance. Pay's out a lump sum to cover your family to continue living in the event of your death or terminal illness. Life insurance also offers options to cover accidents, illnesses and injuries.
- Funeral insurance. Helps your family cover for your funeral expenses in the event of your death.
- When do you receive the benefit? Both life and funeral insurance benefits are paid upon the death of the insurer.
Life insurance vs funeral insurance: The pros and cons
In order to make a more informed decision about which form of coverage is best for you and your loved ones, consider the following pros and cons:
What about if you're over the age of 50?
With this in mind, it is important for people over 50s and senior citizens to consider whether life insurance is the most sensible option for them or whether funeral insurance may be the better option. There are a number of factors that can affect the suitability of each of these types of cover, so you need to assess your situation and that of your loved ones in order to make a more informed decision.
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Do I need funeral insurance if I have life insurance?
In Australia, most life insurance policies have a funeral component. Check with you're provider if you have cover in place, if you do then you won't need to take out additional cover. If you don't, find out how much extra it would cost to add that to your policy.
A closer look at funeral insurance
Aside from the above-mentioned similarities, funeral insurance is very different to life insurance. The basic purpose of funeral insurance is pre-payment for your funeral expenses. Aside from the funeral expenses, there is no lump sum benefit which can be used for other purposes. Therefore, funeral insurance should be strictly used to pay for everything which is related to your funeral. However, despite this limitation, there are a number of benefits you can get from funeral insurance.
- It is easy to understand - Since it will just cover for your funeral expenses, there are no other things that you need to consider or understand.
- It is cheap - A typical funeral insurance cover is between $5,000 and $15,000 making it one of the most affordable insurance solutions in the market.
- It does not require a medical check-up - Since funeral insurance is paid upon your death, you don't need to worry about any pre-existing medical conditions or medical proof upon application.
- It provides your family with cash right away - Once the insured dies, you can process your claim and receive the benefit payment to financially assist you with any expenses regarding the funeral.
If your purpose in drawing out an insurance cover is for your funeral expenses, then this is the ideal insurance product for you. However, if you are expecting a cash value that you can cash in at any time, you will just be disappointed as funeral insurance has none. The only time the payment is made is when the insured dies. Therefore, if you are looking for more, you should consider taking out a life insurance policy for you.
A closer look at life insurance
As mentioned, life insurance has a cash value. Although you might receive the benefit after the insured dies, you can also cash out the value earlier to meet an immediate need. This, however, depends on the policy you take out. This type of life insurance with cash value is called permanent life insurance. Another difference of life insurance from funeral insurance is that you get a lump sum benefit that you can use for other purposes other than the funeral.
- Term Life Insurance. This is another type of insurance product and is more popular than the others because it cost lesser than permanent life insurance and has a more flexible cover - between 5 and 30 years depending on what you need. Furthermore, the benefits are indexed according to the Consumer Retail Index which means that your benefits keep in step with the inflation. Unlike permanent life insurance, term life insurance has no cash value but the premium cost is cheaper.
Aside from the different types of life insurance policies, life insurance has different premium payment options whereas, funeral insurance has none. Regarding life insurance premiums, you can choose between stepped and level premiums.
- Stepped Life Insurance. Stepped life insurance premiums have cheaper initial payment but it increases every year throughout the life of your policy. This means that as you grow older, your premium payment also goes higher.
- Level Life Insurance. It begins with a much higher initial payment but the premium remains the same throughout the policy. Thus, even if you get a 30-year cover with a level premium payment, you get to pay the same amount for 30 years unless you made some changes and adjustments in your policy.
When choosing a life insurance policy, another thing that you should look for is the renewable and convertible feature of a term life insurance policy. These features allow you to later extend your cover or change it into a permanent life insurance policy.
Why get funeral or life insurance?
The question remains in your mind just like many other Australians who question the importance of having life insurance cover. Whether you get funeral or life insurance cover, here are some of the benefits you can get from it.
- You spare your love ones from any future financial burdens. Taking care of your future expenses including your funeral and mortgage repayments lessens the burden of your surviving loved ones that might be emotionally affected by your demise. More so, it makes them focus more on important things instead of worrying about their finances.
- You give yourself some peace of mind. Having the financial side taken care of also lessens your worry about the future. Everybody agrees that one of the reasons why people worry is the fear of lack in the future. With insurance, you know that any extra expenses that might arise in the future are covered.
- You help your family adjust faster. The death of a loved one will always leave a huge emotional vacuum in somebody's life. Aside from the emotional side, it can also affect the family's finances, especially if the person is the breadwinner. When you have insurance to cover you - whether it is funeral or life insurance, your loved ones can get over your loss much faster because they will be able to grieve properly without worrying about paying whatever debts or financial obligations you might leave behind.
There are other benefits you can get from having insurance for you. Just remember that before you sign your name on the dotted line, read the fine print carefully so that there will be no unpleasant surprises or false expectations when you make a claim because of some misunderstanding.