nottheaverageactuary

Actuarial news and views from Cape Town and beyond

Life Settlements in South Africa

3 Comments

A Life Settlement is a transaction whereby an insured life sells the rights to their life policy (future proceeds) to a third party in return for a payment now (Typically higher than the Surrender Value, but lower than the Benefit). In the US, these Settlements are used extensively in the investment market as they are seen as uncorrelated to market fluctuations – thus making Life Settlements an excellent tool for diversification and hedging in a portfolio. According to the research thesis below, another major plus is the high expected yields received on these investments (anywhere between 8% and 16%). Regulations in SA currently prohibit the use of Life Settlements despite the many advantages available to an investor. This research thesis below investigates the inclusion of Life Settlements in the South African investment market as well as the possible impacts of Life Settlements on insurance and re-insurance firms. Although the thesis is relatively long, there are particular sections that present strong debate on this issue. Have a skim through. Do you think Life Settlements should be implemented in South Africa?

http://www.africanagenda.com/convention2013registration/papers/02-dd028f390f3748f4bb07db0fc156f200.pdf

Advertisements

3 thoughts on “Life Settlements in South Africa

  1. See here for another article presenting many advantages/disadvantages and reasons for Life Settlements.

    http://www.hedgefund-sa.co.za/hedge-fund-blog/entry/life-settlements

  2. I find it interesting that Life Settlements aren’t allowed in SA. Does anyone know if a policyholder could just change who is named as the beneficiary of their life policy (in exchange for remuneration and someone agreeing to pay further premiums, but unbeknownst to the insurer) ? Or is it a requirement that you must be able to show that the named beneficiary has an interest in your survival?

  3. As far as I know, in SA you need to have a vested interest in the life in order to benefit from it. I think one of the reasons for this is that it is worrying when a party not related to you has an active financial interest in you dying (that’s a little mafia!).

    Another concern about life settlements is the ability of “investors” to take advantage of the insured. Say you are terminally ill and short on cash, and you have policy which pays out only on death. An investor offers you, say, 50% of the proceeds of the policy immediately, based on a diagnosis that you only have 6 month to live. That’s a 100% return to the investor over 6 month with little risk – but you are not getting the value you paid for with your premiums. See here for an example:
    http://www.businessinsider.com/r-aig-accuses-investment-firm-philanthropist-of-life-settlements-fraud-2014-9

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s