Altrisk Introduces Unique Monthly Death Income Benefit

13 September 2010 Altrisk
Craig Harding, Managing Director of Altrisk

Craig Harding, Managing Director of Altrisk

Altrisk’s new death income benefit is a unique approach to life cover that provides a monthly income to the beneficiary for either 12 or 24 months after the life insured’s death or, in the case of the 24-month benefit, extended to what would have been the life insured’s 60th, 65th or 70th birthday.

This practical benefit follows on a string of unique benefits developed by Altrisk and is ideally suited to clients who want the certainty of a regular, monthly income for their beneficiary without the risks associated with investment returns or the effects of inflation related to managing lump sum payouts.

“Traditionally, life cover has offered a lump sum benefit to fund ‘asset protection’, securing assets such as your house by settling outstanding mortgage debt, on the death of the life insured and providing capital to be invested to provide income in the future. We developed this product when our research showed that a segment of the market wanted certainty around the amount of income that would be available to meet the regular month-to-month expenses such as school fees, car repayments and so on. The death income benefit creates this certainty” explains Craig Harding, Managing Director of Altrisk.

The 12-Month Death Income Benefit can be used for both personal and business planning purposes while the 24-month benefit is only available for personal planning purposes. Altrisk’s valuable Extended Death Income Benefit provides a monthly payment to the beneficiary until the insured’s selected expiry age of 60/65/70. An important feature of the longer term benefits is an in-claim escalation option to provide protection from the impact of inflation on typical monthly costs.

“The estate duty treatment of the benefit would be the same as that of a lump sum life benefit calculated by commutation of the monthly instalment into a lump sum. From an income tax perspective, the treatment of this policy will depend on whether it is conforming or non-conforming in terms of the Income Tax Act”

As with all policies the income tax and estate duty treatment will depend on the specific circumstances of the policyholder and beneficiary,” adds Craig. “There is no limit on the maximum cover available on the benefit but it is subject to financial justification in addition to our usual underwriting requirements. The death income benefit can be taken as standalone benefits or in addition to life cover”.

The Death Income Benefits are yet another unique Altrisk offering and follows a number of first-to-market benefits pioneered by the risk provider including being the:
• first to regularly cover people with severe medical impairments who traditionally couldn’t get cover,
• first to offer new-generation life cover to people living with HIV,
• first to regularly cover people working in high-risk countries,
• first to introduce a suicide exclusion that recognises previous periods of life cover,
• first to adopt standardised critical illness definitions and
• first to do away with irrelevant general exclusions.

The following practical example illustrates:
Andre is 40 years old and earns R30 000pm. He is married and has one young child. In doing a financial planning exercise, he determines that the following obligations need to be fulfilled in the event of his death:
• R1 million worth of debt, and
• R30 000pm income for his widow and child to maintain their current standard of living. To service his R1 million debt on a monthly basis costs Andre approximately R12 000pm in addition to their living expenses.
Andre has three options to choose from to successfully structure his insurance policy/ies:

Option 1:
a single, traditional lump sum benefit for R5 700 000 (R1 million for his debt and R4 700 000 to be invested to provide a monthly income. Investment assumptions of 6% have been used).

Option 2:
a traditional lump sum benefit (R1 million for his debt) as well as a death income benefit of R30 000pm (to provide a monthly income to his family).

Option 3:
two separate death income policies. One policy consisting of R12 000pm (no claim escalation) to service the monthly debt, and a second policy of R30 000pm to provide income to his family.

Option 1
Life cover: R1 million
Life cover: R4 700 000 *
Approx premium: R1054.07

Option 2
Life cover: R1 million
Death income: R30 000pm
Approx premium: R1072.61

Option 3
Death income: R12 000pm
Death income: R30 000pm
Approx premium: R1119.98

Considerations for Option 1:
•Costs of managing lump sum investment
*Management fees
*Income tax on interest component of investment returns from proceeds invested
•Risk of changes in inflation
•Investment risks

Considerations for Option 2:
•No unnecessary costs
•Certainty/peace of mind
•Matches needs of paying off debt and providing income

Consideration for Option 3:
•Exposes Andre’s family to increases in interest rates for the outstanding debt

In making his decision on which option to select, Andre consults a professional financial advisor who would provide the appropriate advice on which benefit best suits his needs.
* Approximate equitant lump sum amount for R30 000pm
Estate duty and executor fees have not been considered for the above example, as the estate duty treatments, as with all policies, will depend on the specific circumstances of the policyholder.
Quote details: client age 40, non smoker, class 1, degree, + R25 000pm, claim escalation used for death income R30 000pm. Death income includes the 24 month benefit and extended benefit.

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