2 July 2018, Article by Ryno Crous
The National Credit Act is enforcing certain rules and standards where life insurance policies are sold to secure loans, such as bonds on the purchase of a new property. In short, these rules look to protect the consumer by prescribing a benefit-specific product package that complies with maximum allowable premiums as defined in NCA regulations.
Should policies be issued with the sole purpose of mandatory credit cover, it will be required that the policy be collaterally ceded to the credit provider.
Finance houses often require that an applicant take out mandatory cover serving as security in the event of the applicant’s death, disability or unemployment. This ceded policy ensures that the loan will be settled should any of the mentioned events occur. The value of this type of policy also extends to the life assured’s dependants, in that creditors will not have to collect unpaid debts from the deceased’s estate if separate provision has been made to settle all loans/bonds and other debt.
Liberty has created a standard loan protection package to fulfil in all the requirements as set out by legislation. This package consists of the following benefits:
- Life Cover. The amount insured would generally be the current balance of the outstanding loan or bond. In the event of the death of the life assured, this amount will be paid out to the cessionary (credit provider) to settle any outstanding debt.
- Capital Disability or Absolute Impairment. The amount insured would generally be the current balance of the outstanding loan or bond. In the event of the disablement of the life assured, this amount will be paid out to the cessionary (credit provider) to settle any outstanding debt.
- Absolute Income Protector. The amount insured under this benefit would be the life assured’s after-tax monthly income, to be paid out in the event of a disability which defeats the assured’s ability to carry on his/her nominated occupation. This monthly amount is paid to the life assured, allowing them to still meet their monthly repayment obligations in respect of the loan entered into.
- Retrenchment Protector. The amount insured under this benefit would be the life assured’s after-tax monthly income up to a maximum of R 30 000.00 per month, to be paid in the event of retrenchment occurring at least three months after the inception of the benefit. This monthly amount is paid to the life assured, allowing them to still meet their monthly repayment obligations in respect of the loan entered into. The retrenchment protector will pay a maximum of 12 monthly payments – This period was extended (from six months), as a special offer only included in the loan protection package. Under the standard lifestyle protection policy, this benefit only pays a maximum of 6 monthly payments in a period of retrenchment.
The loan protection package has also been restricted by way of certain suspended features that result in the product being designed solely for the purpose of credit security:
- The death income and immediate expenses benefit will not be available while the policy is collaterally ceded.
- The child illness protector attached to the Absolute Income Protector will not be available while the policy is collaterally ceded.
- There will be no annual benefit increases attached to the policy, to ensure that benefits remain static and only subject to changes in line with the outstanding balance of the loan or bond.
If the life assured no longer has need of the mandatory credit cover, the cessionary may cancel the cession by providing Liberty with a cession cancellation letter, after which the client may retain the policy in their name.
Should you be interested in applying for/or seeking consultation regarding the loan protection package, please speak to one of our accredited financial advisors who will be able to assist in navigating the technicalities and conditions concerning the product offering.
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NB: Not available for self employed individuals