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Products - Estate Protect - Vs. Guaranteed terms

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The flexible design of the Estate Protect™ benefit extends itself to not only capital protection but also allows you to utilise the benefit payout to provide an income for your dependents on your death, replacing the need for a guaranteed income term in your annuity. This can simply be achieved by selecting the correct level of initial Estate Protect™ cover. 

Using the Estate Protect benefit to provide an income guarantee is more appropriate for the following reasons:

  • A lump sum benefit offers more flexibility at the time of death as compared to income payments for a defined term
  • A lump sum payment is tax free, as opposed to income payments that are taxable
  • The Estate Protect benefit can be reviewed and even cancelled if the need expires as opposed to the existing inflexible guarantee terms
  • The income that can be secured with a lump sum at a later stage will in-variably offer better value - given that the beneficiary would be older at that stage. 

In addition to the efficient product design, Estate Protect™ allows you to review your needs over time, even allowing you to cancel the benefit with an immediate resulting boost to your retirement income.

The diagram below illustrates the payout from Estate Protect™ versus the payout from a guaranteed term product
(the present value of the future payout has been calculated at all times in the future).

Example:
 
A 65 year old male accountant, non smoker with no medical conditions purchases a fixed annuity . He wishes to protect his income against his early death for 10 years into retirement.

 

The following analysis compares a market 10 year guarantee term (premium is calculated as the difference between a 10 year guaranteed annuity and an annuity with no guarantees) and Paramount Life’s new generation Estate Protect™ benefit. 

The analysis clearly shows that:

·         A market guarantee premium is payable for the rest of the accountant’s life however the benefit ceases after 10 years.

·         Estate Protect™ benefits and premiums are for whole of life, however the benefit can be cancelled at any time in the future.

 

It is clear from the table below that irrespective of whether the accountant chooses a level or increasing annuity income:

·         The present value of benefits to be received over 10 years are similar with Estate Protect™.

·         The present value of premiums over 20 years to receive the benefit are significantly less with Estate Protect™.
 

Level annuity income

5% Increasing annuity income

       Estate Protect™

           Market Guarantee Term

     Saving

      Estate  Protect™

           Market Guarantee Term

    Saving

         Premium

R493**

R 750

52%

 

R501*** 

R 482

-4%

         Present Value of Premium  over 20 years*

R 52 293

R 79 554

52%

 

R 53 142

R 70 323

32%

         Present Value of Benefits  over 10 years*

R 2 903 697

R2 925 028

-0.80%

 

R 2 966 665

R 2 958 927

0%

 

By cancelling Estate Protect™ after 10 years the accountant is able to save an additional 26% of premiums over 20 years.
 
 
 
*    Discount rate = 11%

**  Estate Protect: 70% initial cover, a 10 year cover adjustment term and a 10% minimum cover level. 

*** Estate Protect: 60% initial cover, a 15 year cover adjustment term and a 10% minimum cover level.

 

 
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Paramount Life is an authorised financial services provider and is underwritten by Guardrisk Life Limited.