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SA's No 1 Insurance Blog

When you pass away your spouse is going to need some instant cash for a funeral (like in 72 hours). The problem is that life insurance pay-outs take a little longer than a day or two to finalize. So what now? How does your spouse get their hands on quick money and shouldn’t your life insurance policy pay-out some sort of funeral benefit when you pass on? All very good questions…

Nowadays most life insurance policies do have an instant cash benefit built into the policy. The idea is simple. Pay out enough money quickly so the spouse of the deceased can pay for a funeral while the death claim is finalized.

But in most cases, this “funeral benefit” is actually an advance against the original life insurance amount.

“Hold on. You’ve lost me now! The funeral benefit is an advance on what?”

Let’s assume that I have a life insurance policy in place on my life. Let’s assume again that it’s for 1 million bucks. My insurer has an instant cash clause built into the policy wording which says the following (in laymen’s terms). I die and within 24 hours they will pay out R20 000 to my spouse as a funeral benefit. The R20 000 pay-out is, however, an advance against my million bucks life cover.

Quick Calculation

R1000 000 life cover – R20 000 funeral benefit = R980 000 net life cover pay-out.

So, my wife gets her hands on R20 000 immediately and when the life insurance claim is finalized they will deduct R20 000 from the life cover benefit and she will be left with R980 000.

What you need to remember when you take out a life cover policy is that the funeral benefit usually isn’t free and really is just a quick advance on the life cover payout. It’s neat but it ain’t for gratis! And it’s never going to be enough, so you should take out a stand-alone funeral cover policy.

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