Life cover now accepted for multiple loans

According to the two institutions, multiple cessions can now be accommodated by banks and insurers on a single life insurance policy.The two regulators in a joint statement said when an insurance policy is sufficient to guarantee multiple credit facilities obtained by the policyholder, it is no longer necessary to transfer the entire value of the policy to a single credit provider.This means, for example, a life cover of N$2 million, should be sufficient to cover at least three or four loan products taken out. This could then be used as credit insurance for all the loans together, each being allocated a portion that fits to that loan.“The policyholder may choose to assign only a portion of the policy cover necessary to obtain the credit facility. The remainder of the policy can be transferred to other credit providers or left as is. This measure can also be applied to existing policies,” the statement reads.At the end of January this year, BoN data shows Namibians have taken out loans worth N$62 billion from commercial banks, of which the majority was on mortgages at N$43 billion.It is mainly these mortgages that commercial banks require as cover for any defaults or in the case of death and other negative eventualities.The regulators said this move would benefit the individual and save money on acquiring separate life insurance policies to serve as collateral for various credit facilities offered by credit lenders.“As a result, banks and other lenders no longer require the physical original policy document to be handed over to the financial institution for the duration of the loan. The measure goes into effect immediately,” the joint statement reads.It is not clear how this would affect the credit risk associated with individuals when they have one policy spread over different credit facilities – especially since during the past six years, the creditworthiness of an average Namibian has eroded massively.Non-performing loans at the end of December this year hit N$6,7 billion, at least 6,4% of the total N$105 billion loan book.With increasing interest rates, fewer opportunities and spiking inflation, analysts have warned that defaults are set to most likely increase.PSG Namibia's Michelle Louw says the new rule as announced by the regulators is not expected to have any impact on the credit risk banks associate with borrowers. “It is to the advantage of the bank's clients, and the bank is still covered in terms of its credit risk exposure,” she says.Email: lazarus@namibian.com.naTwitter: @Lasarus_A

In an age of information overload, Sunrise is The Namibian’s morning briefing, delivered at 6h00 from Monday to Friday. It offers a curated rundown of the most important stories from the past 24 hours – occasionally with a light, witty touch. It’s an essential way to stay informed. Subscribe and join our newsletter community.

The Namibian uses AI tools to assist with improved quality, accuracy and efficiency, while maintaining editorial oversight and journalistic integrity.