Moonstone: LOA submission to Treasury

The LOA have made a submission to National Treasury to request a partial relaxation of the provisions of Section 54 of the Long Term Insurance Act.

“Section 54, in conjunction with the Regulations, provides for the following:

a) An insurance policy may not provide any benefits that mature before the policy has been in force for a period of 5 years.

b) If the policy is surrendered before the expiry of 5 years, the maximum benefit that can be paid on surrender to the policyholder will be the amount invested plus growth of 5% per annum. The balance of the investment returns must be paid after the expiry of the 5 year period. Where the excess amount is less than R2 500 the entire surrender value may be paid.

c) If the premiums paid in any year exceed 20% of the premiums paid in the any of the previous two years, the restriction period of 5 years commences again from the date of increase in the premiums.

d) Only one loan and one surrender of a policy may be allowed in the first 5 years of the policy term.

It is proposed that the following areas of Section 54 be relaxed:

· Remove the maximum benefit limit of the amount invested plus growth of 5% per annum;

· Allow more than one surrender and / or loan in the first five years of a policy;

· Allow full termination at early ill health retirement;

· Allow full termination at retrenchment.”

Allow me one quote from the submission by the LOA to demonstrate how the over-zealous legislators are contradicting themselves:

“On surrendering a policy during the first five years after commencement, a life office may only pay the policyholder a maximum withdrawal benefit equal to the amount invested plus growth of 5% per annum (the “restricted amount”).

This restriction seems to be at odds with requirements under the minimum early termination values, as contained in Part 5 of the Regulations under the Long Term Insurance Act of 1998, more so in relation to the recent amendments proposed under Part 5. Part 5 specifies a minimum early termination value that could be in excess of the maximum amount payable under Section 54. For example, under the proposals for Part 5, the minimum early termination value after 3 years will be 94% of the fund value. If this amount is in excess of the restricted amount, the balance needs to be retained in the policy and paid at the end of the restriction period.

It becomes difficult to explain to our customers why one part of the legislation provides for minimum early termination values, whilst another prevents us from actually paying the full amount. This seems to be at odds with the direction in which minimum early termination regulation is moving, where the regulatory authorities are encouraging higher early termination benefits.