The Bank of Namibia (BoN) and the Namibia Financial Institutions Supervisory Authority (Namfisa) announced that they had approved with immediate effect that multiple cessions can now be accommodated by banks and insurers on a single life insurance policy.
To get a clear explanation on what this decision means to our readers, The Brief reached out to Sanlam Namibia on how the new development will impact borrowers with an insurance policy.
Below is Sanlam’s explanation:
Prior to this arrangement being implemented, when a bank took a security cession of a life insurance policy to cover the borrower/policyholder’s obligations with the bank, it took security cession of the entire policy and the policy could then not be offered to another bank to secure debts at such other bank.
For example, under the previous dispensation:
Bank A extends a personal loan for N$1 million to Person A. Person A has a life insurance policy with N$5 million cover with Insurer A and cedes it to bank A in security of his debts.
Person A also later takes out a home loan from Bank B for the amount of N$3 million in respect of which Bank B also requires a security cession of life cover for at least N$3 million.
Since Person A’s policy is already ceded fully to Bank A, Person A now has to take out a fresh insurance policy for at least N$3 million to cover the debt with Bank B.
The result is Person B has to take out additional unnecessary life insurance to secure his debts with Bank A and Bank B.
Under the current dispensation:
Everything remains as above, but now Person A only cedes his policy partially to Bank A for N$1 million and can cede the same policy to Bank B for N$3 million, given that there is N$5 million cover under the policy which is enough to secure Person A’s debts at both Bank A and Bank B.
