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Here’s how your life insurance policy is ceded to your bank

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When granting a home loan, the bank may require that a purchaser takes out life cover as security for the outstanding amount. The cession of a life insurance policy means to legally transfer a portion of the cover amount (the amount for which the bond is granted) to the bank to make provision for the settlement of the outstanding bond amount in the event of the purchaser’s death.  The following factors need to be noted:

Existing life insurance policy

If the purchaser has an existing life insurance policy it can be ceded to the bank, provided that the amount of cover is equal to or higher than the bond amount, and if not the cover amount will have to be increased to the total bond amount granted to the purchaser, and the policy complies with all the requirements as set out by the bank and legislation.

New life insurance policy

The purchaser can take out a life insurance policy through the bank, or he/she can choose his own insurer, provided that the policy complies with all the requirements of a life insurance policy as set out by the bank and legislation.


Consider this when ceding a life policy


Joint home loan

If a joint home loan is granted, the bank will require that both parties take out and cede life insurance cover for the full amount of the bond, and not each just 50% of the total bond amount.

The applicable bank’s policy will determine if life cover will be a compulsory requirement or not.


This article is reproduced here with the kind permission of MC van der Berg Inc

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