Debt Impact of Funerals in South Africa
April 1, 2016
Many South Africans are finding themselves with an increasingly smaller disposable income according to debt management company DebtBusters. The main culprit, they say, are garnishee orders accompanied by deductions for multiple funeral insurance products by shady insurers. The debt impact of funerals in South Africa is an unintended consequence of these activities.
These deductions can take up more than 10% of a worker’s income. This is worrying news as if there is one category of insurance product that has brought in a sense of financial inclusion among South Africans of different income groups it is funeral cover. The uptake of these products has unfortunately given rise to profiteering insurers who are out to exploit unsuspecting members of the public with dubious products.
Those particularly vulnerable to such insurers are those in the lower income bracket. Testifying to this phenomenon is Liné Wilde, head of FNB Transactional Banking, an institution which deals mainly with this income group. She decries the many products and services offered to this
segment of the market that are unregulated, leaving the people in it exposed to exploitation. The debt impact of funerals is anything but uncommon.
Debt Impact of Funerals – Nothing New
Exploitative funeral policies are far from a novel phenomenon; even as far back as 2003 cases of policyholders being taken advantage of were heard. Research showed that a number of funeral parlours were offering products that were not underwritten by registered insurers. A number of instances of fraud were also unearthed by the investigation.
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But even by 2011 there were still many funeral insurance products remained unregulated, leaving unsuspecting buyers at great risk of being taken advantage of. One of the ways they were taken advantage of is when they were given the funeral cover as a service instead of a cash product. In this regard the buyer was exploited in two ways.
Debt Impact of Funerals- Undisclosed Benefits
Firstly, the option of a monetary benefit from the cover is not disclosed to them or it is not offered at all. Secondly the policyholder is not given the option of shopping around for a cover with better benefits from other funeral parlours. One other malpractice that was observed was that some parts of the funeral cover could not be negotiated downward at the time of death, only upward. This contributed to the formulation of the South African Microinsurance Regulatory FrameworkPolicy Document being published by the National Treasury. This document was to pave way for a Microinsurance Act designed to rein peddlers of abusive funeral policies. The Act was to have been published in 2012 for comment by the public but has only just been rendered into the public domain this year. If the process goes according to plan the Act will be ready for implementation in the coming two years.
Debt Impact of Funerals- Funeral Headache
The cost of funerals and burial remains a major financial headache for many South Africans. A recent study by FinScope indicated that 24% of the participants found themselves having to borrow money to cater for funeral expenses. Close to 10% of the respondents also admitted to having contributed towards a family funeral besides the premiums most of them already pay towards some form of funeral cover.
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All info was correct at time of publishing