Funeral Insurance

Funeral insurance is a term life insurance policy where the benefit is used towards funeral expenses. The benefit can be in the form of a funeral service, a cash benefit that could be used towards a funeral, or a combination of the two. Outside of credit life insurance, funeral insurance is the most prevalent form of microinsurance in a number of countries.

This paper considers the current and potential role and value of funeral insurance for low-income consumers based on evidence from selected countries. Despite the variance in experiences across countries, the following important themes emerge:

1. Funerals and related expenses are prominent in the minds of low-income households and, accordingly, many households place high priority on finding ways to deal with funeral expenses and are willing to dedicate part of the household income to funeral cover.
2. There is a strong link between funeral insurance and the underlying service, namely the funeral. This link to a tangible service is an important driver of demand as well as, in some cases, of the choice of distribution channel used.
3. Funeral insurance is provided in both formal and informal markets. In some instances, funeral parlours self-insure – that is, informally act as insurers. Informal funeral insurance furthermore occurs where groups of people pool funds to help cope with funeral expenses. Funeral insurance is also an important product in some formal markets and is at the forefront of many commercial insurers’ drive to reach down the income spectrum. As such, it has been one of the focus areas for alternative distribution innovation.
4. Funeral insurers are challenged to deliver better value to customers. The combination of strong demand for funeral cover and the close association with funeral services may lead to particular consumer vulnerabilities. A number of trends are, however, starting to emerge to counter abuse and provide enhanced value.