ABSTRACT
The purpose of the research was to explicitly analyze the provision of
Life Assur-ance policy loans using SIC Life Company Limited as a case study.
The Poison distribution being one of the exponential families as well as the
deviance of model tting was employed in analyzing the data. Microsoft excel
programs especially the use of the development year concept, bar chart and
curves were used in an-alyzing the data. It was revealed that policies with
loans outstanding are more surrendered than those without loans. The Family
Security as one of the classes of policies without loans outstanding is mostly
surrendered as compared to the other classes of policies. From 1998 to 2013,
the total numbers of policies surren-dered without loans outstanding were
44,889 whilst those with loans outstanding were 55,854; hence policies with
loans outstanding are mostly surrendered as compared to those without loans.
CHAPTER 1
Introduction
1.1 Background
of the Study
In recent years life assurance
companies have witnessed tremendous growth. In Ghana, there are about 22 life
assurance companies underwriting life assurance products. Each company comes
out with innovative measures in order to woo clients into patronizing their
products (Abdullah, 2011).
SIC Life Company Limited (SIC
Life), originally existed as the life division of the erstwhile reputable
multi-line insurer, the State Insurance Company of Ghana Limited ( SIC).The
provision of the Insurance Act 2006, Act 724 made SIC Life to conform to and
was therefore established as a fully licensed life insurance com-pany in
2007.It is currently the largest and most reputable life insurance company in
Ghana controlling the largest share of life insurance market (Abdullah, 2011).
Some of the products of SIC Life include: traditional policies (endowment
poli-cies, whole life policies, riders, mortgage protection policy), Universal
life policies (family security plan, Flexi-child education plan, Ultimate life
plan and Educa-tion plan), Group life insurance schemes ( Group security plan,
Group term with investment, Group term with personal accident and Group term
only), Others ( Sika plan (okum-ka), loan protection plan, funeral insurance,
school fees protec-tion plan, Guaranteed Endowment plan).
At SIC Life, a claim can be made in
the following ways: Partial withdrawal, policy loans, paid-up, personal
accident, maturity, surrender, among others. Par-tial withdrawal is accessing
part of one’s cash value up to 60 %. Policy loan is using one’s cash value as a
guarantee to borrow a loan facility from the company up to 85% of the cash
value. When a policy holder stops with the payment of premiums, meanwhile, he
has not closed down his policy, it is termed as paid-up. Maturity is the date
the policy pays the cash value to the policy holder. The surrender is the sum
of money an insurance company pays to the policy holder or annuity-holder if
he/she voluntarily terminates it matures. Personal accident cover is an added
bene t to the policy that caters for part of the assureds’ medical bills in the
event of an accident. This project work seeks to help address how e ectively
policy loans at SIC Life should be administered.
1.2 Problem
Statement
Every limited company has the aim
of making pro t in order to stay in business. Companies therefore raise capital
using various means by ensuring the risk of incurring substantial debts are
made minimal. SIC Life invests the premiums it receives in so many ways. One of
the ways is giving out policy loans to poli-cyholders. A policy loan means using
one’s policy cash value as a collateral to assess a loan. The Cash Values(CV)
of policyholders are used as collaterals and this allow policyholders to borrow
up to a maximum of 85% of the CV at 15% per annum rate of interest.
Repayment of the policy loans is
either by cash or an additional deduction to premium at source where the
assured works and/or is paid. In as much as the cash value remains positive,
the assured can continue to assess as many policy loans as desired. Technically
there is no insurance cover when the cash value turns negative hence cannot
thus service the premium required for the sum as-sured. Most policyholders at
this point upon seeing a negative CV are challenged to surrender their policies
due to the inability to repay huge loans outstanding. Some do so and
immediately reinstate whilst others feel disgruntle and opt out completely thereby making the
company lose premiums in ows which directly have a nancial implication for the
company in the long run. If this is allowed unchecked, it negatively a ects the
company and thereby has the potentialities of diminishing the nancial fortunes.
Most clients complain that the company should have deducted the outstanding
loans outright from their premiums which too is not the practice of the company
and is even debatable as to whether it is the approach to go by. There should
therefore be limitations as to how policy loans should be granted out so that
policy holders do not end up surrendering their policies prematurely as a
result of policy loans. It constitutes ine ective investment management if the
company continues to lose huge number of valued clients as a result.
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