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Income Tax Act 2007

Timing and quantifying rules - Terminating provisions - Expected death strain formulas

EZ 53: How expected death strain is calculated

You could also call this:

“Calculating the expected financial impact of policyholder deaths on life insurance”

To calculate the expected death strain for an income year, you need to follow three steps:

You start by using a special formula for each person insured under every life insurance policy that exists at the beginning of the income year. There are two different formulas you might use, depending on the situation.

Next, for each life insurance policy, you add up the amounts you calculated for all the people insured under that policy.

Finally, you add up all the totals you got from step two for all the policies.

The formula you use in the first step depends on whether the policy is paying an annuity or not. If the policy isn’t paying an annuity at any time during the income year, you use the formula in Section EZ 54(1). If the policy is paying an annuity at some point during the income year, you use the formula in Section EZ 54(2).

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View the original legislation for this page at https://legislation.govt.nz/act/public/1986/0120/latest/link.aspx?id=DLM3112409.

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EZ 54: Expected death strain formulas, or

“Formulas for calculating potential insurance payouts due to death”

Part E Timing and quantifying rules
Terminating provisions: Expected death strain formulas

EZ 53How expected death strain is calculated

  1. For an income year, the life insurer calculates their expected death strain by following these steps:

  2. first, use the relevant expected death strain formula to calculate an amount for each life insured under each life insurance policy existing at the start of the income year (see: subsections (2) and (3) for guidance on the relevant expected death strain formula):
    1. second, for each such life insurance policy, add together the amounts for the lives insured under it:
      1. third, add together the totals reached under paragraph (b).

        1. Section EZ 54(1) sets out the expected death strain formula (life). This is the formula a life insurer uses for an income year, to calculate an amount for a life insured under a life insurance policy, except to the extent to which an annuity is being paid under the policy at some time in the income year.

        2. Section EZ 54(2) sets out the expected death strain formula (active annuities). This is the formula a life insurer uses for an income year, to calculate an amount for a life insured under a life insurance policy, to the extent to which an annuity is being paid under the policy at some time in the income year.

        Notes
        • Section EZ 53: inserted, on , by section 199(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).