Industry

Insurance customers tap more policy loans on pandemic woes

Insurance-policy

The surrender value of the life insurance policies is held as collateral for loans on life policies. FILE | NMG

Insurance customers last year tapped more loans on their life insurance policies and slowed down on repayments as they sought to avoid surrendering their covers to raise funds.

Data on four out of the five insurers listed on the Nairobi Securities Exchange show that outstanding policy loans—usually tapped against life insurance covers— grew by 22 percent to Sh3.89 billion.

The growth — a faster pace than 13.8 percent in the previous year — came on the back of increased demand for new loans amid slowed repayment of old ones as insurance customers navigated Covid-19 economic fallout.

Britam’s #ticker:BRIT policy loan book rose 24 percent to Sh1.87 billion as that of Jubilee Insurance #ticker:JUB increased by 22 percent to close the year at Sh1.22 billion.

Outstanding policy loans by CIC #ticker:CIC rose by 14 percent to Sh546.5 million. Only Sanlam #ticker:SLAM bucked the trend to register a 17 percent drop to Sh254.39 million. Insurance customers are allowed to borrow money from their own life insurance policies—essentially borrowing their own money at interest.

The surrender value of the life insurance policies and title documents are held as collateral for loans on life policies and mortgage loans respectively.

The loan offers a window for the insured to receive in advance part of the money that could be received from the policy either through surrendering the policy or on payment of the death benefit. Some policy holders however still overlooked the policy loans to tap into a larger share of their life covers through surrenders.

Data by ICEA Lion Life, Britam Life, Jubilee Life and Sanlam Life—who accounted for 56.1 percent of gross life insurance premiums for last year— saw a combined 53 percent rise in surrenders and annuities paid.

“Whilst the Group saw an increase in withdrawal of pension funds and surrender of policies, this was mitigated through efforts to accommodate clients with greater flexibility in payment terms,” said Jubilee at the release of full year results.

The surrenders and annuities paid by the four insurers moved from Sh16.84 billion in 2019 to close last year at Sh25.75 billion.

A surrender is a full cancellation of a life insurance policy while a life annuity is an insurance product that allows for periodic payouts to an individual until death.