Most of us understand the importance of looking after our families and dependants with an appropriate funeral insurance policy.
Ordinarily, taking out a policy for yourself and your partner is enough to protect those closest to you should the worst happen. But, there may be instances where covering a family member who is dependent on you financially, will give you that extra bit of security and peace of mind. This is where third-party funeral insurance comes in.
It’s not necessarily as simple as it sounds. To make sure you have the best insurance portfolio for you and your family’s needs, it’s important to partner with a reliable financial services provider who can guide you through the more complex funeral policy requirements. Understanding these three aspects of third-party funeral cover is a good place to start.
Can I take out a funeral insurance policy on someone else?
If you’d like to take out a funeral insurance policy on someone else (without you being insured as the main insured life)– if, perhaps, they are unable to have their own policy – you first have to prove you have an ‘insurable interest’ in the person you want to cover. Based on your relationship with this person, there would be financial consequences for you, should they pass away. Many South Africans are financially responsible for family members outside their immediate family e.g. Aunts, Uncles, Parents & Grandparents.
Elaine Markus, Standard Bank’s Head of Life Insurance Propositions and Strategy explains: “Insurable interest is the relationship that exists between the premium payer and the person whose life is being insured. Put simply, this means that before you can take out funeral insurance on anyone, you need to make sure that an accepted relationship exists – for example, with an uncle, sibling, or business partner – and if that person were to suddenly pass away, you would be under increased financial pressure.” Proof of this relationship and evidence on the financial dependency will be required to prove insurable interest.
In the case of third-party funeral cover, the premium payer is purely responsible for the payment of the monthly premium and has no “rights” to the policy, unless the life insured nominates the premium payer, as the beneficiary to the policy. The life insured (your sibling, uncle etc.) will be the Policy Holder and the contract will be between the Insurer and the Life insured as the owner of the policy. The payment of premiums remains the responsibility of the life Insured, even if premiums are being paid on their behalf by a related party (you).
Is it possible to take out a funeral policy without the insured person knowing?
“The simple answer to this is no,” says Markus. “In the process of taking out a third-party funeral insurance policy, you as the premium payer and the life insured needs to be available for application – in-person or telephonically – to contract for the funeral insurance policy. The only exception to this is where parents include minor children to their policies or where an adult has been incapable of managing their own affairs and the relevant Legal Power of Attorney exists.
In fact, it’s considered insurance fraud to insure someone else’s life without their knowledge and consent.”
If you’re taking out a funeral policy for an elderly parent, whose funeral costs you’d have to cover or a business partner, whose death would put significant financial pressure on you or a sibling, whose children you’d have to look after should they pass away – you’re likely to have a relationship based on trust. You wouldn’t want to take out a funeral policy without their knowledge. “In the process of proving insurable interest,” says Markus, “you’re also proving you have an open, honest relationship.
With any kind of funeral insurance policy, whether it’s yours or a third-party member’s, keeping open lines of communication throughout the process is essential.
What are the pros and cons?
By taking out a funeral insurance policy on someone else, you’re taking on the responsibility of monthly premiums to cover another person. This will naturally increase your monthly bills, but you’ll be rewarded with peace of mind and appropriate cover if or when you need it.
“As your life changes, and you become responsible for more people’s wellbeing and financial security, your insurance portfolio will need to be updated, at Standard Bank we help you protect what matters the most” says Markus. “But third-party funeral cover isn’t meant to be an additional headache. It’s there to cover your and your family’s needs. It only makes sense to take out third-party funeral cover if your own financial situation will be more secure as a result, but there are some limitations on the funeral cover allowed.”