MICHAEL METELITS, Johannesburg | Wednesday 12.30pm.
HOLDERS of life insurance policies will be able to get a higher price when selling the assets in the near future as Sanlam and Policy Link, an Australian firm, have an agreement to formalise the handling of second-hand policies.
Regular procedures for handling the second-hand policies will raise the average surrender price paid to consumers who give up their life insurance, according to Sanlam. The move also heralds the emergnece of a widespread secondary market in insurance in South Africa.
Investors buy pooled surrendered insurance policies in Australia, and there are signs of investor interest here in South Africa. Liz Lambrechts, chief executive at Sanlam Life, thinks pools of second-hand policies will offer good value to institutional investors.
Second-hand policies will be “securitised” or pooled, and investors will pay to access the financial benefits given up by policyholders when they surender their policies. Often, the price of participating in these benefits will be higher than the surrender value of the policy itself, thus making a profit margin for Sanlam and Policy Link.
Lambrechts urges people to consider carefully before surrendering policies. Life insurance is a contractual savings instrument, and can be a great benefit to consumers, both as collateral and as a long-term source of funds.
Lambrechts says the pools of surrendered policies will be less volatile than equities, but more dynamic than traditional fixed income securities, thus providing a middle ground for institutional investors like pension funds.