Don’t Let Choosing a Funeral Policy Be The Death Of You. This Guide Will Help You Navigate Choosing a Funeral Policy With Confidence

Why Are Funerals So Important?

The importance of funerals is not surprising, considering that for many in South Africa, funerals are considered a vital rite of passage – more so than weddings, births, and graduations. Funerals are for both the living and the dead; they honour the dead as they transition to their new life as an ‘ancestor,’ while also offering an opportunity for the family left behind to strengthen ties within the community. Funerals are also an important opportunity to signify the social status of the deceased and their household. Many families face significant social pressure to bury a family member in a manner consistent with the household’s social status. And if these expectations are not met, the family may be pushed down in the social hierarchy.

How expensive are funerals?

According to Business Insider and News24, the funeral industry generates around R10 billion a year. This is a solid 2% of South Africa’s GDP, and the industry continues to grow at 12% annually. Research has shown that social pressure is significant enough that households choose to spend exorbitant amounts of money rather than accept a loss in status. For example, a study by the International Labour Organisation, households in Grahamstown (in the poorest province in South Africa) spent around 15 times their average household income on a funeral. Another study in Northern Kwa-Zulu Natal found that an adult’s funeral on average, cost the equivalent of a year’s income. While both studies took place in poverty-stricken areas, these figures nonetheless indicate disproportional spending on funerals. This attests not only to the high pricetag attached to saying goodbye to a loved one, but also to the fact that families are willing to pay it.

So where does the money go? The highest costs are meat and groceries for funeral-goers, followed by the coffin. And while funeral practices vary across the country, funerals in Northern KZN for example also involve buying traditional burial blankets. The family is further expected to cover the costs of entertaining mourners, including hiring a tent for the ceremony and providing board and lodging for as long as the mourners choose to stay. Animals are also slaughtered to honour the dead, where in KZN a single cow (which must be slaughtered for an adult male’s funeral) can cost anywhere from R8500 – R16 000. Household members are primarily responsible for funeral costs, and if the family cannot afford the funeral, they will often turn to a money lender or the community rather than reduce costs.

How The Informal Funeral Industry Is Exploiting The Poor

With the high costs of funerals, and lack of education around life insurance policies, it is no wonder funeral insurance is so popular. Following a study by the Centre for Financial Regulation and Inclusion (CENFRI) in 2013, nearly 90% of South Africans with risk cover have some type of funeral cover. For more than a quarter of those who have such cover, the insurance is sold by a funeral service provider (ie a funeral parlour). The target market for these products low-income consumers, who are marked by high unemployment and low education levels. The policies are sold on a for-profit basis (meaning premiums are costly). Moreover, there is evidence that a significant number of these providers offer funeral insurance on an informal basis, meaning policy offerings are not backed by a formal insurance company. This is contrary to the Long-term Insurance Act, which stipulates that a company offering financial services must either be registered as a financial services provider, or its policies must be underwritten (guaranteed) by a registered insurer.

The exploitative practices extend beyond exorbitant premiums and non-compliance with market conduct regulations. Many informal insurance vendors are also involved in questionable business practices. Examples include using insurance premiums to fund day-to-day (funeral parlour) business and paying out claims in the form of funeral services without stating the monetary value of such. Such behaviour also traps the consumer into using the funeral parlour’s services, or else lose benefits of the premiums paid. This practice directly contradicts government legislation, which mandates a quantified cash pay-out option must be available.

These types of products also expose consumers to other risks due to mismanagement. This leads to poor insurance risk practices, lack of financial management, and non-compliance with market conduct laws. For example, in many funeral parlours, the funeral business is not kept separate from the insurance business. This means the business may not have sufficient funds to cover claims when they arise. Other bad business decisions, such as failure to collect client data and not accounting for the health and age of the client, combined with bad risk management, mean such businesses are unable to effectively manage their financial risk. This means a funeral parlour may find itself in a position where it serves 1000 clients, but must cover funeral expenses for 200 clients simultaneously. Where an informal provider is not backed by a formal insurance broker, there is no guarantee that it can afford to pay out the clients.

What Can You Do?

While the government is aware of these exploitative practices in the funeral industry, the high number of informal vendors means there is a limit to what the government can do. When choosing a funeral policy, the Ombud for Financial Services Providers recommends the following steps:

• Make sure you have proof the insurance vendor is licensed. You can confirm this with the Financial Sector Conduct Authority.
• When initiating a policy application, ensure that you are clearly identified as the policyholder and that you receive a formal contract or policy document.
• Be honest on application and claim forms, as any misrepresentations could lead to policy cancellation, a claim denial or even a fine.
• Do not sign any blank documents! This is against the financial service providers’ General Code of Conduct.
• Understand the exact premium amount you must pay, and be aware premiums may increase yearly. Missing a payment can result in lapsed coverage and unpaid claims.
• Note any special conditions or exclusions in the policy. Some insurers impose age limitations or waiting periods on funeral policies.
• Avoid taking too many funeral policies. These policies are intended to cover funeral costs, not make a profit.