Media Release Association for Savings and Investment South Africa (ASISA) 15 March 2016.

“………..Surrenders and lapses Dempsey says of concern to the industry is the increase of 18% in the surrender value of individual savings policies from R58.2 billion in 2014 to R68.9 billion in 2015.

A policy is surrendered when the policyholder stops paying premiums and withdraws the fund value before maturity. Dempsey says while the increase in surrender values can be partly attributed to higher investment returns, it is probable that a higher number of policyholder surrendered their policies out of financial desperation. “Surrendering a savings policy is rarely in the long-term interest of the policyholder, because it is almost impossible to make up at a later stage the compound growth lost.”

The statistics for surrendered policies must be viewed in the context of the total value of in force policies – a large portion of the life industry’s R2.6 trillion assets – and not just the new investment business written in 2015. Dempsey says by comparison, policies lapsed in 2015 increased by only 2% within the first year of being written.

A lapse occurs when the policyholder stops paying premiums, usually for a risk policy. Dempsey says while new recurring premiums for the 12 months ended 31 December 2015 amounted to R19.9 billion, first year premiums worth R4.3 billion were lapsed. “While the lapsing of a risk policy does not result in the destruction of a policy value, it does remove the financial risk protection buffer leaving the policyholder and beneficiaries financially vulnerable in case of a life changing event like death or disability. The immediate benefit of saving the premium comes at the cost of an asset in the future, namely the policy payout……….”

Considering the enlarged text above;
Our view concurs wholeheartedly with that statement.