Consumers who have ceded their life policies as security over debt with a financial institution should not overlook the importance of releasing the cession when the debt has been fully settled.
Releasing a cession involves requesting a financial institution to relinquish all its rights over your policy when you have fully paid back what you owe.
Lee Bromfield, CEO of FNB Life, says consumers often mistakenly assume that once their debt has been paid up, the lender automatically cancels the cession on the policy. Only you as the rightful owner of the policy have the legal right to transfer/cede or terminate the rights of the policy to a third party.
Failure to release a cession will result in complications if the insured passes away. If a cession is not cancelled it means that the financial institution still has a legal right over the policy, even if the debt has been settled.
As a result, the insured’s beneficiaries or loved ones may experience delays in accessing the payout as the financial institution would pay the cover amount into the deceased’s estate.
“Not only would it take longer to access the funds as the deceased’s estate would first have to be winded up, the policy payout would also be subjected to tax,” says Bromfield.
To release a cession, you first have to settle the amount owing and cancel the account involved, e.g. Bond Account Cancellation. Once this had been done, you need to contact your financer and inform them of your desire to release the cession.
You will then be requested to complete and sign an application form – officially requesting the financial institution to cancel the cession. As soon as the form has been received by the financial institution, it may take seven to fourteen days to process.
Once complete, the financial institution will provide you with a letter confirming that the cession has been cancelled. The letter should be shared with your insurer to ensure that policy details are adequately updated.