FANews
FANews
RELATED CATEGORIES
Category Life Insurance

Changes to Estate Duty Act mean it’s time to revisit your life cover options

09 June 2010 Grant Thornton Financial Services (Cape) (Pty) Ltd

Changes to the Estate Duty Act this year could change the landscape of life insurance options. According to global audit and advisory firm, Grant Thornton, you may no longer have the best policy to suit your needs and could be paying far more than you need to.

Previously, R3.5 million was left either to a trust or to a child in order for the deceased to take advantage of the R3.5 million estate duty abatement offered by SARS. The remainder of the estate was then left to the surviving spouse as this portion did not attract estate duty.

“The amendments to the Act mean that, in effect, the estate of the surviving spouse can use a tax free deduction of up to R7 million on death. For certain individuals this negates the need for trusts that are expensive to run,” says Brett van Vuuren, Risk Specialist at Grant Thornton Financial Services Cape Town.

Previously, there was a need to have life insurance that covered estate duty for both spouses, as no one knew which spouse would pass away first. This way of covering both lives for the estate duty is quite costly as both lives need to be insured.

The change in the way estate duty is levied means that a spouse can leave his/her entire estate to the surviving spouse (thereby not attracting any estate duty), and the surviving spouse will now get R7 million as the estate duty abatement on their death. In light of these changes, there is a far more affordable option for life cover.

Called the Last Survivor Death Benefit, it provides payment on the death of the last survivor of two insured lives. This allows both partners to be covered by one policy and provides for estate duty liability to be deferred until the death of the last person.

In other words, two lives are insured, but the benefit only pays out after both of the lives assured have died.

“This is not a well-known benefit, but is far more affordable than regular life insurance policies,” says van Vuuren.

In addition to low management fees, the premiums are also about 70% lower than individual life insurance policies and no premium is payable after the first person dies.

For example (see figure 1), an average couple paying R608 a month for normal life cover could save R431 per month (or R5172 per year) in insurance premiums by switching to the Last Survivor Death Benefit.

“The cost savings are substantial” says van Vuuren. “While it may not suit everyone, due to the changes in estate duty law, we recommend that you speak to your financial advisor to figure out the most affordable policy to suit your needs.”

Figure 1: Example of cost saving of regular life cover versus Last Survivor Death Benefit:

Both John and Jane are university graduates, non-smokers and 50 years old.

1. Normal life insurance of R1,000,000

Life Assured

Life Cover

Premium

John

R1,000,000

R352.33

Jane

R1,000,000

R240.99

Monthly policy fee

R15.00

Total

R2,000,000

R608.32

2. Last Survivor Death Benefit

Life Assured

Life Cover

Premium

John & Jane

R2,000,000

R162.10

Monthly policy fee

R15.00

Total

R2,000,000

R177.10

Quick Polls

QUESTION

South Africa went to Davos to pitch itself as an investor-friendly destination, then signed an Expropriation Act. What message does this send to global investors?

ANSWER

Invest at your peril
SA is open for business
Two steps forward, one land grab back
Welcome to Hotel California
fanews magazine
FAnews February 2025 Get the latest issue of FAnews

This month's headlines

Unseen risks: insuring against the impact of AI gone wrong
Machine vs human: finding the balance
Is embedded insurance the end of traditional broker channels?
Client aspirations take centre stage as advisers rethink retirement planning
Maximise TFSA contributions before year-end
Subscribe now