Losing a loved one can be a very difficult time. It takes time to grieve and there is the added pressure of organising a send-off that they can be proud of. However, imagine not knowing where the money will come from to pay for it. That’s where funeral insurance comes into play. It can ease those fears and financial strain from end-of-life costs, allowing your family to financially survive during an incredibly stressful time.
How Does Funeral Insurance Work?
Funeral insurance is a policy that provides a lump sum payment to cover funeral expenses upon the insured person's death. Policyholders pay regular premiums, typically monthly or annually. In the event of the insured's passing, a claim is made, and the nominated beneficiaries receive the sum insured to cover funeral costs, easing the financial burden during a difficult time.
Do I need it?
Before taking out funeral insurance, you should consider:
- Your Needs: What type of funeral do you want? There are many choices involved, which include burial or cremation options, service type, coffins/caskets, whether you will offer catering services to attendees and lots more.
- Premiums: It’s important to land on a premium you can afford, as you’ll need to keep up with payments to ensure your cover stays in place.
- Policy Terms: Understand the policy terms, including waiting periods, coverage limits, and exclusions.
- Beneficiaries: Decide who will receive the policy payout.
- Inflation: Consider funeral costs in New Zealand. Will the coverage amount you take out now be enough to cover funeral costs when the time comes, or will your loved ones need to contribute to the cost?
When should I take it out?
When you should take out funeral insurance depends on individual circumstances and needs. It may be a good time for you to take out a policy when:
- You’re at a younger age: Starting at a younger age can mean lower premiums.
- When your budget allows: When you can comfortably afford the premium payments without straining your budget.
- You’re have no other financial options: If you lack alternative means, like savings or pre-arranged funeral plans, to cover funeral expenses.
- Peace of Mind: When you want to ensure your loved ones are financially prepared for your funeral costs.
It's essential to carefully assess your financial situation and priorities before deciding when to take out funeral insurance.
What are the benefits of funeral insurance?
Funeral insurance offers peace of mind by providing a financial safety net to cover funeral expenses. It eases the burden on loved ones during a difficult time, ensuring that the costs associated with a funeral, such as caskets, burial or cremation, and other related expenses, are taken care of. Funeral insurance is often accessible with minimal medical underwriting, making it an option for individuals with health concerns. Moreover, it allows policyholders to choose beneficiaries who will receive the payout promptly, streamlining the process and making sure their wishes are fulfilled without delay.
How long does the policy last?
A funeral insurance policy lasts for the lifetime of the policyholder, as long as premium payments are paid. Unlike term life insurance, which has a set duration, funeral insurance is a form of whole life insurance, offering lifelong coverage. This means that it remains in effect until the policyholder passes away, providing a death benefit to cover funeral expenses when the time comes.
How much does it cost?
The cost of a funeral insurance policy is determined by several factors, including:
- Age: The younger you are when you take out your policy, the lower your premiums will be.
- Coverage Amount: The sum insured (the amount beneficiaries will receive) directly affects the premium; higher coverage amounts lead to higher premiums.
- Gender: In some cases, gender may impact premiums, with women often paying lower rates due to longer life expectancy.
- Smoker Status: Smokers tend to pay higher premiums because of the increased health risks associated with smoking.
- Waiting Period: Some policies have a waiting period before full coverage begins, and premiums may be lower if this waiting period is longer.
It's crucial to carefully evaluate these elements to choose a funeral insurance policy that aligns with your financial needs and circumstances.