Men advised to keep on paying

Isaac Moledi

Isaac Moledi

Policyholders who do not pay their monthly premiums on their life and disability policies would lose being covered, the Life Offices Association (LOA) has warned.

The LOA was responding to concerns raised by some men who wanted to know what would happen in the event they stopped paying their premiums due to the age reduction announced by the Treasury earlier this year.

According to Finance Minister Trevor Manuel, the age at which men could qualify for the social old age grant would be reduced from 65 to 60 by 2010.

Starting from today, the qualifying age for men will be reduced from 65 to 63. This will again come down to 61 next April, and will then be reduced further to 60 in 2010.

Because of Manuel's announcement, some men felt they may no longer afford paying their monthly premiums as they would have retired, and without any income.

They wanted to know the implication of this on their retirement policies.

The LOA said unlike endowment savings and retirement annuities, risk policies such as life and disability covers were important because once premiums were stopped, cover also ceased.

Lerato Mametse, the LOA's deputy executive, said policyholders could stop their premiums or reduce them in the case of both endowment policies and retirement annuity (RA) funds.

But with an RA fund you are legally entitled to access the money only from age 55, she adds.

Mametse referred to the Statement of Intent signed by the LOA and Manuel in 2005 and implemented by life industry in 2006.

In terms of this agreement, aimed to mitigate the impact of an early termination, an RA fund member who decides to retire early will receive at least 70 percent of the fund value.

Endowments that are surrendered will receive at least 60 percent of the fund value.

These percentages apply for the first few years of the policy after which the minimum charges gradually decline to zero.

Her advice is: Don't take out savings policies like endowments and RA fund policies for more than five years.

If you find that you can still afford the premiums after five years, you can always extend the policy term for another five years.

The LOA believes that implementing the age legislation does not mean that men would be forced to retire from their employment at that age.

"In fact, the trend overseas is towards longer employment periods given the global skills shortage," said Mametse.

She argues that the new age legislation is also a recognition that consumers require greater flexibility since a job for life is no longer the trend.

"For this reason, it is no longer a given that people can afford their premiums for long periods of time as was the case when people tended to hold on to the same job until retirement," she said.

She says the life industry is currently awaiting the implementation of the draft regulations on early termination values.

It aims to drastically reduce the financial impact of exiting a savings policy early.

Once these regulations are in place, a life company may not reduce a policy holder's fund value by more than 15 percent, she said.

In addition to the termination charge, insurers may levy an administration charge of not more than R300.

"The draft regulations state that in the case of policies with a term of five to 10 years, fund values may not be reduced once a policy has been in force for five years."

Where a policy term is longer than 10 years, Mametse says the fund values may only be reduced if an early termination takes place within the first 10 years.