TOPIC 1: THE LIFE INSURANCE INDUSTRY

Lesson Unit 2: Legal and Tax Issues

Contents
2.1 Contractual capacity
2.2 Insurable interest
2.3 Principles of agreement
2.4 Insurance Act 18 of 2017
2.5 Miscellaneous restrictions and prohibitions
2.6 Cause and circumstances of death
2.7 Restrictions applicable to a new business
2.8 Cessions
2.9 Beneficiaries
2.10 Beneficiaries and retirement annuities
2.11 Income Tax Act and insurance
2.12 Other general taxation issues
2.13 Policyholder protection rules
2.14 Financial Intelligence Centre Act (FICA)
2.15 Protection of Personal Information (POPI) Act

Learning outcomes

When you have completed studying this lesson unit, you should be able to

• explain the concept of contractual capacity and list the types of persons who have no,
or a limited, contractual capacity
• explain the special adaptations to the common-law principle of contractual capacity,
brought about by the Long-term Insurance Act
• explain when insurable interest must be present
• provide examples of insurable interest, as applicable to life insurance policies
• explain the difference between caveat emptor and uberrima fides
• discuss the implications of the reasonable man test, as applicable to life insurance
policies
• explain how a lost policy document can be replaced
• briefly describe the legislative protection afforded to life insurance policies
• explain, in general terms, the miscellaneous restrictions and prohibitions applicable to
life insurance policies and their marketing, including maximum commission scales
• discuss how the cause of the death of a life insured may affect the payment of a claim
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Open Rubric
• explain, in some detail, the restrictions applicable when a new policy is issued
• describe a cession and its applications to a life insurance policy
• explain the difference between an absolute cession and a security cession
• explain the rights that a beneficiary appointed to a life insurance policy has
• discuss, in some detail, the unique position of a beneficiary nominated on a retirement
annuity and the rights that the beneficiary has
• explain the impact that the Income Tax Act has on the employer and the employee, if
the employer owns a life insurance policy on the life of the employee
• list and provide a general description of other taxation issues that apply to a life insurer

Key concepts
Beneficiary
Capital gains tax
Caveat emptor
Absolute cession
Contractual capacity
Insurable interest
Mutual agreement
Reasonable person test
Security cession
Uberrima fides

Introduction
In Lesson Unit 1, you learnt about the life industry bodies which affect the life intermediary.
Lesson Unit 2 presents the legal and tax issues affecting the life intermediary, and
discusses the legal and tax environment in which the life intermediary conducts its
business. The legal environment is imperative for any type of business, including that of
the life intermediary.

Study Chapter 2 of the Principles of life insurance for detailed discussions on various topics
relating to contracts, tax, cessions and standard tests used in the life intermediary. You will
observe that most of the concepts used in this lesson are the same as those used in
insurance law.

To enhance your understanding and application of the theory presented in Lesson Unit 2,
we recommend that you obtain a copy of the Insurance Act of 2017. This will also enable
you to propose solutions to some of the issues facing the life intermediary.

This lesson will not repeat the content of the prescribed book, but provides activities and
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(where necessary) an explanation of the subject covered. The activities are designed to
help you apply the principles or rules.

Overview
When studying Lesson Unit 2, you must distinguish between the rule of law, insurance
principles and legal tests. This will enhance your ability to solve the practical cases which
mainly form part of the written questions at the end of each lesson unit in the prescribed
book. For example, contractual capacity is the rule of law which forms part of the law of
contacts, while insurable interest is an insurance principle used to distinguish between an
insurance policy and a gamble. The reasonable man test constitutes a legal test, but is not
a rule. You are encouraged to remember this when attempting both the revision and written
questions at the end of each lesson unit in the prescribed book.

Lesson Unit 2 consists of 17 topics , excluding the revision and written questions, as listed
on the first page of this lesson unit.

2.1 Contractual capacity

Study the following section in the prescribed book:

2.1.1 Persons who have no contractual capacity

Activity 2.1.

Qonda took out a life policy of R5 million a year after establishing his own business. After
16 months of the inception of the life policy, Qonda was involved in a terrible accident and
was declared mentally challenged by a medical practitioner. One day, Qonda stole the keys
to his car, rolled the car and was declared dead on the scene. The insurer declined to pay
out on the basis that Qonda’s dependants had failed to disclose his health status.

Evaluate whether the decision made by the insurance company in the above case, was
correct.

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Feedback on activity 2.1

The insurer was incorrect: Qonda was incapable of being held responsible for his actions.

2.1.2 Persons with limited contractual capacity

Study this section in the prescribed book.

2.2 Insurable interest

Study the following sections in the prescribed book:

2.2.1 When must insurable interest be present in insurance contracts?

2.2.2 Examples of insurable interest

Activity 2.2

Discuss five examples of insurable interest.

Feedback on activity 2.2

Refer to the suggested solution in the prescribed book.

Activity 2.3

Mr and Mrs Alby understood that they have unlimited insurable interest on the life of their
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first-born child. As a result, they planned to take out the maximum life cover permissible in
law on the life of their six-month-old son.

Do you agree with the Alby family?

Feedback on activity 2.3

No, in theory parents do not have insurable interest on the lives of their children. The
issuing of a policy is done on a concession basis.

2.3 Principles of agreement

Study the following sections of the prescribed book:

2.3.1 Mutual agreement

2.3.2 Caveat emptor, uberrima fides and the reasonable man test

Activity 2.4

What does the reasonable man test entail?

Feedback on activity 2.4

Refer to the suggested solution in the prescribed book.

Activity 2.5
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Insurer A informed Vika that only R1 million, instead of R2 million, life cover can be accepted
from a proposal. Vika proceeded to approach insurer B for another R1 million life cover,
without telling insurer B that insurer A had declined the R2 million cover. When the claim
was submitted, insurer B rejected Vika’s claim based on his failure to disclose material
information.

Evaluate the decision taken by insurer B.

Feedback on activity 2.5

The insurer was correct. The insurance records of the proposer are material and must be
disclosed to the insurer.

2.4 Insurance Act 18 of 2017

Study the following sections of the prescribed book:

2.4.1 Days of grace

2.4.2 Protection of certain life policies
2.4.3 Protection against creditors

2.5 Miscellaneous restrictions and prohibitions

2.5.1 Restricted insurance on children under 14-year age (refer to Section 55 of the
Insurance Act)

The Act requires insurers not to provide life insurance of more than

a. R20 000 for a stillborn child or a child under six years of age
b. R50 000 for a six-year-old child or a child under 14 years of age

Note: The old threshold figures have changed from R10 000 and R30 000 to R20 000 and
R50 000 respectively.

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Activity 2.6

Suppose family X plans to take out the following funeral insurance policies, as at
31/01/2020:

a. On which policies can family X successfully take out insurance? Give reasons
for your answer.

b. On which policies can family X not successfully take out insurance? Give
reasons for your answer.

Feedback on activity 2.6

a. The family can successfully take out insurance on the following policies:
➢ Mr X’s policy, because he has unlimited insurable interest on his life.
➢ Mrs X’s policy, because she has unlimited insurable interest on her life.

b. The family cannot successfully take out insurance on the following policies:

➢ Johan was only 12 months old in 2020. According to the regulatory restrictions,
Johan’s life can be insured to a maximum of R20 000. The same restrictions apply
to Lusi, who was three years in 2020.

Study the following sections in the prescribed book:

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2.5.2 Limited relief for misstatements of age
2.5.3 Only the rate table given to the regulator may be used
2.5.4 No discrimination
2.5.5 No inducement
2.5.6 No credit for the first year’s premium
2.5.7 Conditional selling

Activity 2.7

Company X sells both banking and life insurance products. Eliser applied for a loan of
R100 000. Company X required Eliser to obtain a credit life policy with any company in its
group of companies for the same amount, before granting her the loan.

Evaluate the requirements of company X.

Feedback on activity 2.7

Company X’s requirements limit Eliser’s right to choose her insurer.

2.5.8 Maximum commission scales

Section 49 of the Insurance Act dictates that no consideration may be offered other than
the commission, as laid down in the regulations.

2.6 Cause and circumstances of death

Study the following section in the prescribed book:

2.6.1 Death at the hands of the law

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Activity 2.8

Insured A has a life insurance policy. In January 2020, insured A was found selling drugs
in a foreign country where capital execution is still legal. Insured A was found to be
conducting illegal business and, as a result, was executed. The dependants of insured A
submitted a life claim form. The insurer declined the cover.

Advise the dependants of insured A on whether the declinature of the claim was correct.

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4
5
Feedback on activity 2.8

The insurer is correct to decline the claim, because an insurance contract is a lawful
contract. It does not, however, promote lawlessness. Therefore, the insurer is free not to
pay the claim, even though the act was performed in a foreign country.

Note: The South African democratic government has banned capital punishment in our
country.

2.6.2 Murder

Study this section in the prescribed book.

2.6.3 Suicide

Activity 2.9

Discuss why life insurers provide suicide cover.

Feedback on activity 2.9

➢ It is a concession by life insurers that suicide is covered in life insurance.

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 ➢ Most companies do not cover suicide in the first two years after cover was taken out.
➢ Insurers can rate the suicide risk of an applicant.

2.6.4 War service

Activity 2.10

Kodwa paid a R800 monthly premium on his life policy, with the sum assured for R1 million.
When Kodwa resigned from the military and became a teacher, the insurer reduced the
premium to R380 per month, for the same amount assured.

Explain what could have caused the premium to drop.

Feedback on activity 2.10

It is possible that the insurer removed an extra premium relating to military service risks
when Kodwa became a teacher.

2.7 Restrictions applicable to a new business

Study this section in the book.

2.8 Cessions

Study the following sections in the prescribed book:

2.8.1 Absolute cessions

2.8.2 Security cessions
2.8.3 Formalities attached to a cession

2.9 Beneficiaries
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Learn about, and understand, the following principles in this section:

• A third person gains the rights on a policy by accepting the benefits when offered by
an insured.
• The beneficiaries of the policy could be
(i) insured – for example, where the insured peril occurs while the insured is still
alive
(ii) the insured’s estate – for example, where there is no stated beneficiary in the
policy
(iii) a third person who was not included in the policy – for example, where there is
no stated beneficiary and the fund is distributed through the guardian fund or the
state expropriates it
(iv) a third person who is included in the policy – for example, where there is a stated
beneficiary in the policy.
• Insurers do not presume that a married insured intends to benefit his/her spouse or
children.

Study the following sections in the prescribed book:

2.9.1 Third party as a beneficiary

2.9.2 Revocable nominations of beneficiaries
2.9.3 Irrevocable nominations of beneficiaries

2.10 Beneficiaries and retirement annuities

Study this section in the prescribed book.

Additional information
The Pension Funds Act applies to the following retirement funds:

(i) Pension funds

(ii) Provident funds
(iii) Retirement annuity funds
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(iv) Pension preservation funds
(v) Provident preservation funds

When studying the procedures relating to beneficiaries and retirement annuities, as stated
in section 2.10 of the prescribed book, we recommend that that you obtain a copy of Section
37C of the Pension Funds Act.

Learn about, and understand, the following principles in this section:

(i) The procedures discussed in section 2.10 of the prescribed book are undertaken
only when the pension benefits of the five funds discussed above are disposed of,
because of the death of a member.
(ii) The definition of the word “beneficiary” in the Pension Funds Act.
(iii) The definition of the word “dependant” in the Pension Funds Act.
(iv) The fund (management board/trustees) must find out who the dependant/s is/are
and determine how much they should pay per dependant/s within 12 months of the
death of the member.
(v) A designated nominee, in writing, of the deceased member is considered after 12
months of tracing the dependant/s, provided that the deceased’s estate has a
favourable balance.
(vi) The fund (management board/trustees) must determine what proportion of benefits
is to be paid to the dependant and the nominee.
(vii) Where neither a dependant nor a nominee exists, the benefits are paid to the
deceased’s estate.

Activity 2.11

Mohlale worked for several companies, but only three had retirement benefits. On
Mohlale’s death, the following records were available:

Fund name Date of Amount Records of trustees’ Reason for

joining available meetings leaving the
the fund retirement

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 fund

ABC Retirement January 1999 R70 000 No dependant/s and no Resigned

Annuity nominee/s traced

DEF Provident Fund October 2005 R120 000 No dependant/s and one Retrenched
nominee

XZY Pension Fund June 2018 R210 00 Koko and Naeem (the only Died
children and only existing
dependants of Mohlale)

Show how each fund will dispose Mohlale’s retirement benefits on leaving (ignore tax
calculations).

Feedback on activity 2.11

Hint: Consider the legal options of each fund, on the termination of the working relationship.

2.11 Income Tax Act and insurance

Note the following instructions:

Section 2.11.1 Employer

This section is not discussed here, but see section 10.1.3 of the prescribed book, which
discusses policies owned by employers.

Section 2.11.2 Employee

This section is not discussed here, but see section 2.12.4 of the prescribed book, which
discusses the taxation of retirement funds.

2.12 Other general taxation issues

Study the following section in the prescribed book:

2.12.1 General overview

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Activity 2.12

Types of tax Natural persons Juristic persons

Consumption Income

Income

Corporate

STC

VAT

Estate duty

Donation

Capital

Show, by marking with an “X”, who pays what type of tax.

Feedback on activity 2.12

Types of tax Natural persons Juristic persons

Consumption Income

Income X X

Corporate X

STC X

VAT X X

Estate duty X

Donation X X

Capital X X

2.12.2 Personal income tax

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Learn about, and understand, the following framework in this section:

Framework for the calculation of normal tax (Haupt 2017)

Gross income (section 1) ………………………………………….. XXXXX

Less: Exempt income (section 10 and 12T) …………………………… (XX)

Income ………………………………………………………………. XXX

Less: Deductions and allowances (sections 11 to 19 and 23) …………(X)

Add: Taxable portion of allowance (section 8) …………………………… X

Less: Taxable portion of capital gains (section 26A) ……………………. X

Less: Assessed loss brought forward from previous years ……………. (X)

Taxable income (assessed loss) ………………………………….. XXX

Calculation of tax (considering the tax tables) ……………………………XXX

Less: Rebates ……………………………………………………………….(X)
Less: Amount paid during the year…………………………………………(X)
Tax payable/(refund)…………………………………………………………. X

2.12.3 Corporate tax

Learn about, and understand, the following information in this section:

• Corporate tax (28%)
• Secondary tax on companies (20%)
• Tax provisions for small businesses

Additional information
Life insurers maintain the following five funds in respect of taxation life policies (Haupt
2017):

1. Untaxed policyholder funds

2. Individual policyholder funds
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 3. Company policyholder funds
4. Corporate funds
5. Risk policy funds

2.12.4 Taxation of retirement funds

To enhance your understanding of the taxation of retirement funds, study the sections
below.

Study the following additional information:

National Treasury (2020)

With effect from 1 March 2016, section 11F of the Act has made provision for deductions
in relation to contributions to a pension, provident or retirement annuity fund, to be allowed
when calculating the taxable income of a person. The calculation of the amount to be
deducted is prescribed in the formula and is subject to a cap.

Contributions to a retirement fund by the employee

• Contributions made by an employee to a pension or provident fund (from 1 March 2016)
are tax deductible, subject to certain limits (Section 11F of the Income Tax Act).
• Contributions made by employers on behalf of employees, though taxed as fringe
benefits in the hands of the employee, are treated as “deemed contributions” by
employees (Section 11F of the Income Tax Act).
• Contributions made by natural persons to a retirement annuity (from 1 March 2016) are
tax deductible (Section 11 of the Income Tax Act).

The amount of the deduction in a particular year of assessment is limited by section

11F, to the lesser of (A, B and C) (below):

Limits of contributions to a retirement fund – the total deduction that a taxpayer may claim
under Section 11k is limited to

The lesser of:

A R350 000

OR

B higher of 27.5% of taxable income

AND

C 27.5% of the remuneration.

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Note: For this module, you will be given the figures for both the taxable income and the
remuneration, therefore you will not need to calculate them.

Activity 2.13

During the year of assessment ended February 20XX, Abel’s records regarding his
retirement contributions showed the following:

Abel’s contributions R250 000

Abel’s taxable income R480 000
Abel’s remunerations R340 000

Calculate the tax deductible contributions.

Feedback on activity 2.13

Lesser of

a. R350 000

b. higher of

27.5% x R480 000 or 27.5% x R340 000

= R132 000 0R R93 500
= R132 000

Therefore, only R132 000 will be allowed for tax deduction. The amount of R118 000
(R250 000 – R132 000) will be deducted in the following tax year. Also, this amount is
deducted in the calculations of the estate duty (see Lesson Unit 11).

Contributions to a retirement fund by employers (Haupt 2017)

• Contributions made by employers to a pension fund, provident fund and benefit fund
on behalf of the employee, are deducted by the employer (Section 11L of the Income
Tax Act).
• Employers can deduct 10–20 per cent of their wage bill from the taxable income.
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• Partnership organisations are treated differently – they are not covered in the scope of
this module.

Proceeds from retirement funds (Haupt 2017)

• Employers do not receive or accrue benefits from retirement funds.

• The following are events which give rise to receipts of benefits from retirement funds
by the employee:
(1) Withdrawal (due to resignation, divorce order, etc.)
(2) Retirement benefit (due to death, retirement or severance pay)

Activity 2.14

Obtain a tax table showing how the receipts from retirement funds are taxed.

Feedback on activity 2.14

(a) Withdrawal (www.sars.gov.za)

Figure 2.1: Retirement fund lump sum withdrawal benefits

Retirement fund lump sum withdrawal benefits consist of lump sums from a pension,
pension preservation, provident, provident preservation or retirement annuity fund, on
withdrawal (including assignment in terms of a divorce order).

Tax on a specific retirement fund lump sum withdrawal benefit (lump sum X) is equal to

• the tax determined by the application of the tax table to the aggregate of lump sum X,
plus all other retirement fund lump sum withdrawal benefits accruing from March 2009,
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 all retirement fund lump sum benefits accruing from October 2007 and all severance
benefits accruing from March 2011; less

• the tax determined by the application of the tax table to the aggregate of all retirement
fund lump sum withdrawal benefits accruing before lump sum X from March 2009, all
retirement fund lump sum benefits accruing from October 2007 and all severance
benefits accruing from March 2011.

(b) retirement or death (www.sars.gov.za)

Figure 2.2: Receipts due by retirement or death

• Retirement fund lump sum benefits consist of lump sums from a pension, pension
preservation, provident, provident preservation or retirement annuity fund on the death,
retirement or termination of an employment due to attaining the age of 55 years,
sickness, accident, injury, incapacity, redundancy or termination of the employer’s trade.

• Severance benefits consist of lump sums from or, by arrangement with an employer, due
to, the relinquishment, termination, loss, repudiation, cancellation or variation of a
person’s office or employment.

• Tax on a specific retirement fund lump sum benefit or a severance benefit (lump sum or
severance benefit Y) is equal to

o the tax determined by the application of the tax table to the aggregate of amount Y
plus all other retirement fund lump sum benefits accruing from October 2007 and all
retirement fund lump sum withdrawal benefits accruing from March 2009 and all
other severance benefits accruing from March 2011; less

o the tax determined by the application of the tax table to the aggregate of all retirement
fund lump sum benefits accruing before lump sum Y from October 2007 and all
retirement fund lump sum withdrawal benefits accruing from March 2009 and all
severance benefits accruing before severance benefit Y from March 2011.

Study the following subsections in the book:

Special retrenchment concessions

Withdrawal from a fund
Tax on Retirement Funds Act
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Tax treatment of approved funds

2.12.5 Average and marginal tax rates

Study section 2.12.5 in the prescribed book.

2.12.6 Taxation of life insurance policies

Study section 2.12.6 in the prescribed book.

A. Personal insurance products for individuals (Haupt 2017)

Study section 2.12.6 in the prescribed book regarding the taxation of life policies owned by
an individual.

Insurance premiums paid by individuals

• Except for retirement-related products, there is no tax deduction for natural persons
when taking out life policies. Section 23 of the Income Tax Act prohibits the deduction
of any premium paid by a person on an insurance policy if the policy covers a person
against death, illness, injury, disability and unemployment.

Insurance proceeds accruing to individuals

• The same applies, except for retirement-related and annuity products, when natural
persons or their beneficiaries receive the life insurance proceeds; that is, they are not
taxed. Section 10 of the Income Tax Act exempts from tax (this implies the proceeds are
included in the gross income) any amount received or accrued in respect of death,
disablement, illness and unemployment (Haupt 2017:90).

B. Company-owned policies

Study section 2.12.6 in the prescribed book regarding the taxation of life policies owned by
employers or companies.
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(Haupt 2017:157) states the following:

Usually employers take out these life policies for the following reasons:

a. For protection against loss of profits associated with the loss of key persons (discussed
in Lesson Unit 10).
b. To provide for a lump-sum payable on retirement of the employee or director.
c. To cover general work-related accidents – the so-called ‘employment event’ policies.
The premiums for these policies are deducted under Section 11(a).
d. Section 11(w) states that some policies may be for the direct benefit of employees or
directors, and in some cases remain to benefit the company only.

Section 11(w) of the Income Tax Act (Haupt 2017:157)

This section of the Act is divided into the following sections:

Section 11(w)(i) covers with-profit policies.

• An employer may deduct premiums paid to a policy of insurance if the following

conditions are met:
(i) The employer is the policyholder.
(ii) The policy relates to the death, disablement or severe illness of an employee or
director.
(iii) Premiums paid by an employer are taxed as fringe benefits in the hands of
employees.

Section (w)(ii) covers risk policies.

• An employer may deduct premiums paid to a policy of insurance if the following

conditions are met:
(iv) The employer is the policyholder.
(v) The policy relates to the death, disablement or severe illness of an employee or
director.
(vi) The policy is a risk policy.
(vii) The employer has elected to deduct the premiums paid.
(viii) Premiums paid by an employer are taxed as fringe benefits in the hands of
employees.

2.12.7 Donations tax

Study section 2.12.7 in the prescribed book.

Note:
• For the month of February 2018 and prior months, it is a flat rate of 20%.
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 • From 1 March 2018, donations tax is levied at a rate of 20% on the aggregated value
of property donated, not exceeding R30 million, and at a rate of 25% on a value
exceeding R30 million (section 64(1)).

Also note:

• In determining the R30 million threshold, the aggregate value of property donated
commences from 1 March 2018 to the date of current donation. Any donations made
prior to 1 March 2018 must not be taken into account
• The aggregate value of property to determine the R30 million threshold is calculated
after deducting any exemptions (s56);
• Where the donor has exceeded the R30 million threshold, all subsequent donations
will be taxed at a rate of 25%.

Abrie et al. (2015:256) state the following about donations tax:

• A donation is a free transfer of property, as well as a free waiver of a right.

• Tax deductions allowed in terms of Section 18(A) of the Income Tax Act, which form part
of the individual’s income tax calculations, should not be confused with the concept of
donations tax.
• Donations tax does not form part of the individual’s annual income tax calculations.
• Donations tax is calculated on each donated property.
• It is levied on the capital transferred, not on an individual’s income.
• Non-residents of South Africa do not pay donations tax.
• The donor is liable for the payment of a donations tax.
• If the donor fails to pay within the prescribed period, both the donor and the donee are
jointly liable for the payment of donations tax.

Exemptions
For individuals, the first R100 000 per annum of donations made by a single donor is free
from donations tax.

2.12.8 Capital gains tax (CGT)

Study section 2.12.8 in the prescribed book.

Haupt (2017) states the following about capital gains tax:

• A capital gain arises when an asset is disposed of for more than its base cost.
• A portion of the net gain is added to the taxpayer’s taxable income and is subject to
normal tax.
• It is not a separate tax from income tax.
• Capital losses are not deducted from taxable income.
• The portion of a person’s net capital gain, which is included in the taxable income, is
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 prescribed by the Minister of Finance.

The basic calculation of a capital gain (Haupt 2017:665) is as follows:

Proceeds from sale of capital asset……………….XXX

Less: base cost of asset……………………………(XX)
Capital gain………………………………………….. X

Note: In this module we will always give you both the percentage of taxable gain and the
tax rate.

Figure 2.3: Capital gains tax (https://www.sars.gov.za/Tax-Rates/Income-Tax/Pages/Capital-Gains-

Tax-(CGT).aspx)

2.13 Policyholder protection rules

Learn about, and understand, the following in this section:

• Policyholder protection rules (PPRs) are aimed at ensuring that policies entered into,
executed and enforced, are in accordance with sound insurance principles and
practices, in the interests of the concerned parties and in the public interest.
• PPRs do not apply to any business undertaken between insurers.

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Study the following sections in the book:

• Basic rules for direct marketers

• Agreements with intermediaries
• Assistance business group schemes
• Other requirements included in the policyholder protection rules
• Additional insurer duties

Activity 2.15

The insured submitted a proposal form to a life insurance company for a R2 million life cover
at the beginning of February XXXX. The life insurer e-mailed the policy information after
receiving the results of John’s blood tests on 10 February XXXX, and deducted the first
premium on 25 February XXXX, as per the proposal form. After reading the policy
information, John realised that the exclusion of life cover was not favourable and decided
to cancel the policy on 1 March XXXX.

Discuss whether the insured will be charged a penalty fee, and whether the deducted
premium will be refunded by the life insurer.

Feedback on activity 2.15

John received the policy information after 10 February and cancelled the policy within 30
days of the cooling-off period. There will be no penalties and premium deductions.

2.14 Financial Intelligence Centre Act (FICA)

Learn about, and understand, the following in this section:

The Act establishes a Financial Intelligence Centre and a Counter-Money-Laundering

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Advisory Council to combat money-laundering activities.

Study section 2.14 in the prescribed book.

2.15 Protection of Personal Information (POPI) Act

Learn about, and understand, the following in this section:

The Act provides

• rules for processing personal information
• for rights and remedies, where personal information has been mistreated
• measures to ensure the promotion and enforcement of POPI.

Study the following sections of the book:

2.15.1 Status of POPI

2.15.2 Who must comply with POPI
2.15.3 Rules for processing personal information
2.15.4 Consequences of non-compliance with POPI
2.15.5 Intersection between POPI and other laws

Activity 2.16

Indicate whether you agree with your colleagues who strongly argue that POPI only
protects information owned by individuals. Motivate your point.

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Feedback on activity 2.16

No, POPI protects personal information which is under the ownership of individuals and/or
businesses.

Activity 2.17

ABC Assurance Brokers processed new business proposals on behalf of DEF Life. On 2
January XXXX, the server of ABC Assurance was hacked, and the hackers circulated the
client data in the foreign media. ABC Assurance did not report the data breach because it
did not want to lose DEF Life’s business. On 31 May 2018, Mqeqeshi was the first insured
who became aware that his personal information had been circulated. He discovered this
through a friend who is studying in Japan. After a long conversation with his friend in Japan,
Mqeqeshi phoned you and asked the following questions:

1. In terms of the Protection of Personal Information Act, which company is in this case
the operator?

2. What is the responsibility of the operator when it observes the data breach of its
systems?

3. In terms of the Protection of Personal Information Act, which company is the

responsible party in this case?

4. What is the responsibility of the responsible party when it observes a breach of data?

5. Which company is liable for processing clients’ personal information?

Feedback on activity 2.17

1. ABC Assurance Brokers.

2. To inform the responsible party.

3. DEF Life.

4. To notify the Regulator and affected data subjects.

5. DEF Life.
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Conclusion

Based on what you have learnt thus far, reflect on what you consider to be the most
important information for understanding life insurance.

Sources consulted
Abrie, W, De Clercq, B & Graham, CR. 2015. Deceased estates. Pietermaritzburg:
Interpak.
Davis, DM. 1993. Gordon and Getz – the South African law of insurance. Cape Town: Juta.
Haupt, P. 2017. Notes on South African tax. Roggebaai: H&H.
National Treasury. 2020. Explanatory memorandum on the taxation laws.
Republic of South Africa. 1962. Income Tax Act 58 of 1962. Pretoria: Government Printers.
Republic of South Africa. 1996. Constitution of the Republic of South Africa Act 108 of
1996. Pretoria: Government Printers.
Republic of South Africa. 1998. Long-term Insurance Act 52 of 1998. Pretoria: Government
Printers.
Republic of South Africa. 2000. Promotion of Access to Information Act 2 of 2000. Pretoria:
Government Printers.
Republic of South Africa 2001. Financial Intelligence Centre Act 38 of 2001. Pretoria:
Government Printers.
https://discover.sabinet.co.za/webx/access/netlaw/38_2001_financial_intelligence_c
entre_act_38_of_2001.htm (visited 31/12/2019 @18:04).
Republic of South Africa. 2002. Financial Advisory and Intermediary Services Act 37 of
2002. Pretoria: Government Printers.
Republic of South Africa. 2004. Short-Term Insurance Act: Policyholder Protection Rules
https://www.gov.za/documents/short-term-insurance-act-policyholder-protection-
rules?gclid=EAIaIQobChMIrYWotJmt8AIVEevtCh2SuA6lEAAYASAAEgJwnfD_BwE
#
Republic of South Africa. 2013. Protection of Personal Information Act 4 of 2013. Pretoria:
Government Printers. https://www.gov.za/documents/protection-personal-
information-act (visited 31/12/2019 @18:04).
South African Revenue Services. 2017. Budget 2017 tax guide.
http://www.sars.gov.za/AllDocs/.Documents/Budget/Budget%202018/Budget%20Tax
%20Guide%20A4.pdf (accessed on 1 July 2017).
Tlakula, P. 2017. Information Regulator South Africa. Briefing on the work of the information
regulator. http://www.justice.gov.za/inforeg/docs/sp-20170213-InfoRegBriefing.pdf
(accessed on 28 July 2017).

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