BUSINESS NEWS
Public losing R2bn a year on policies
Posted Tue, 06 Dec 2005
Forty percent of life policies sold in South Africa are either surrendered or allowed to lapse — which means that the public collectively loses more than R2-billion a year in premiums.
Four in 10 policies sold in the nine months to September were terminated during this period.
This is according to the Financial Services Board's latest annual report, quoted by business media on Monday.
Changes to the financial circumstances of policyholders was the main contributor to terminations. This could include retrenchment, reduced income, divorce, promotion, or a new job, or product mis-selling, Momentum's Ferdi van Heerden told Business Report.
Gerhard Joubert, executive director of the Life Offices Association, told the daily that commission structures paid on policies were key to reducing churn. Premature termination of a policy often results in huge penalty fees for the policyholder, who also loses all premiums already paid in.
The rate of terminations is
expected to rise as low-income earners take out life policies, said the newspaper. Affordable insurance products for this market are expected to be launched next year.
The LOA told the paper the last FSB survey had shown that 23 percent of policies lapse in the first year, 11 percent in the second year, seven percent in the third year, and six percent thereafter.
If you are considering taking out any financial product, make sure you can afford it first. You will be making a costly mistake if you are forced to surrender or lapse the policy before it matures. Protect yourself by drawing up a financial plan you can stick to.
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