Many retirement annuities and preservation funds are funded by long-term insurance policies.
These policies are actually contracts between the Fund and the insurer : the Fund takes out a policy of insurance in order to provide the benefits to its members in terms of the fund rules.
These policies are "long-term policies" as defined in the Long-term Insurance Act, 1998. They are regulated by this Act and must comply with all the requirements of the Act.
Although the member chooses the policy, the policy is owned by the Fund and not by the member.
When you take out one of these policies you become a member of the Fund and have a contract with the Fund. The contract consists of the rules of the Fund and essentially means that you, the member, pay contributions to the Fund and the Fund pays you a benefit when you retire.
How does this work?
The Fund uses the contributions it receives from the member to pay the policy premiums to the insurer and the insurer, in turn, pays a policy benefit (the maturity sum) to the Fund when the member retires.
The table below summarises these relationships:
Chooses a long-term policy
Becomes a member of the fund and has a contract with the fund
Pays contributions to the fund
Receives benefits from the fund on retirement
Owns the long-term policies bought by members
Uses contributions from fund members to pay premiums to the insurer
Pays benefits to members when they retire
Receives premiums from the fund
Administers the policies held by fund members (sales, policy changes etc.)
Pays a policy benefit to the fund when the member retires