FSB issues second hand policy alert 

The Financial Services Board (FSB) warns the public to be wary when dealing in second hand policies as such the cessions are not covered under the Long-term Insurance Act.

Head of the FSB’s Market Conduct department, Oppies Opperman, says:

“Potential sellers of second hand policies should get the surrender value from the insurer before parting with their policy. They must also  enquire whether there are any costs charged against the cession, and compare it to the amount of premiums that have been  paid over the term of the policy.

“The purchaser of a second hand policy should be aware that there are certain upfront costs involved in taking cession of such a second hand policy. 

“The buyer should also ensure that no loans are outstanding on such a policy and that the cessionary is the owner of the policy.  This can be confirmed by the insurance company.”

Opperman added that certain unscrupulous brokers operate in the following way:

-           The broker buys a second hand policy.

-           The broker takes a loan on the policy to the full extent of
             the value.

-           The broker sells the policy to an unsuspecting third party.

-           Cession is given to the buyer who is unaware that the
             policy has been pledged as security for a loan.

“We have information that could point to certain practices where employees of insurers may be involved in similar activities and we will investigate. In fact we are already conducting inspections of brokers dealing in second hand policies.

“It is common practice that policies are offered to the public in rounded-off amounts.  A second hand policy is an existing policy and the current value of any policy is nearly always an odd amount.”

ENDS

Issued by
Russel Michaels
Manager: Communication & Liaison
Financial Services Board
Ph 012 428 8025 / 083 280 2954

Wednesday 23 May 2001