By: Nashalin Portrag, Marketing Actuary at Momentum Corporate
While death is one of life’s certainties, the risks that can result in death are changing. So too is the need for death benefits across the SA workforce. HIV/AIDS risks are being replaced by injury and lifestyle-related diseases. Furthermore younger generations, a rapidly-rising proportion of the workforce, are at increased risk for accidental death.
As death risks and the face of the SA workforce change, financial advisers need to become familiar with the changing needs of their clients’ employees and ensure death cover, along with all insured group benefits, evolve to meet these needs.
Rise in accidental deaths
A recent mortality investigation by Momentum Corporate into our group insurance data shows that while mortality rates have declined year-on-year, particularly for lower-income earners, the proportion of unnatural, or accident-related deaths, is increasing. Overall improvements in mortality rates are largely attributed to advancements in healthcare and HIV treatment protocols as well as improved living standards. These improvements have a direct impact on non-accident related mortality rates; but not necessarily on accident mortality rates. The increasing rate of accidental deaths is also reflected in the latest StatsSA Mortality report.
About 18% of the approximately 25,000 death claims Momentum Corporate paid over the last eight years have been due to accidental death causes. The accident proportions are higher for males (21%) compared to females (10%) but this difference reduces as age increases. The number of accidental deaths of high earners may be lower than low earners, but the proportion of accidental vs. non-accidental is higher for high earners than low earners.
The analysis also shows the impact of industry on the proportion of claims due to accidental death. More labour-based industries or traditionally “risky” occupations, such as mining, construction and security, have higher relative proportions than lighter, tertiary professions.
Additional Momentum Corporate research on the reasons why employers provide employee benefits to their staff shows that they feel a strong moral obligation to provide insured benefits. Death cover is high on the list of benefits offered, while other priority benefits include disability, funeral and critical illness cover. A key factor to employers for selecting an insurer to provide these benefits include affordability and good design that ensures benefits meet employees’ needs effectively.
Approved death benefits via a retirement fund are normally provided based on the employee’s income. This may not necessarily meet the needs of each employee, whose individual circumstances and death risks differ vastly. This can create uncertainty for individuals about whether their beneficiaries’ needs will be suitably addressed should they die. Solutions to address this uncertainty need to be balanced against the need for affordability.
In addition to the level of benefits, employers should also consider below factors when solving this complexity:
- Tax implications of the death benefit. This differs depending on whether the benefit is offered through their retirement fund (approved benefits) and/or outside their retirement fund (unapproved benefits). Click here for more on the differences between approved and unapproved benefits.
- Cashflow timing. Dependants may experience cashflow pressure depending on how long they have to wait before receiving the death benefit. Approved benefits usually take longer to pay due to considerations by the fund’s trustees in terms of Section 37C of the Pension Funds Act. According to Section 37C the trustees decides on who should receive the deceased’s death benefit when they die, determines whether the claimant is a dependant or not and also taking in consideration their level of dependency. The Pension Funds Act describes different categories of dependants which include legal dependants, factual dependants, spouse dependants, child dependants and future dependants. An additional unapproved benefit which pays out faster can ease this pressure.
- Do employees have a Will and are their beneficiary nomination forms up to date? This helps to speed up the payment of benefits.
- Additional assistance benefits. These benefits provide assistance to dependants throughout the grieving period, such as repatriation, bereavement counselling and trauma support.
It’s not simply about offering your clients’ employees a death benefit. Partnering with a future-fit insurer with valuable insights into changing workforce needs and the ability to deliver affordable, needs-based benefit design and sustainable pricing, ensures you can offer your clients your ‘best of advice’ group insurance solution for all insured benefits, including death cover.