Cession in Roman and Roman-Dutch law

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Confucius say:

“Needing life insurance is like needing a parachute. If it isn ́t there the first time, chances are you won ́t be needing it again.”

Background

Life insurance cannot prevent death or prolong life. Life insurance is, however, a source of monetary consolation in the face of an adverse event, such as death or early death. Being a source of monetary consolation, life insurance is a valuable asset in the policyholder’s estate. Because life insurance is also an asset, it can be used as security for credit facilities. Most financiers (or credit providers) extend credit only on the strength of some kind of security. Security serves to protect the financier in the event that the loan is not repaid. If the loan is not repaid, the financier can look to the security to satisfy the remaining indebtedness. Financiers would not be able to exist without a system of security. Life insurance policies have been used to secure loans almost from the time that life insurance was legally recognised, and today this is still one of the most popular methods of securing credit. When a life insurance policy is used as security, the financier acquires the right to claim the policy proceeds. Should the policyholder default on loan repayments, the financier may use the policy proceeds to satisfy the outstanding balance under the loan. The use of life insurance as a means to secure credit brings together three diverging legal concepts: First, the principles of Insurance Law are involved because the object of the security is a life policy. Secondly, the principles of the Law of Cession play a prominent role since cession is the vehicle by which the asset (that is the rights under the life policy) is transferred from the estate of the policyholder to the estate of the financier. Thirdly, because the transfer of the rights under the life policy is intended to be temporary and for security purposes only, principles of security are also involved. In addition to the diverging legal concepts, trade practices also play a part. The trade practices of the insurance industry, as well as the trade practices of the banking industry, make the already complex situation even more complex. Consequently, there is much disparity and legal uncertainty when a life policy is used as security for credit facilities. There is even disparity as to how a security cession should be constructed. Academics have attempted to solve some of these issues and a large body of theory has emerged. Much of this theory does not consider trade practices and has caused discontentment amongst practitioners. The unsatisfactory state of affairs prompted the South African Law Reform Commission to investigate whether legislative intervention was necessary. The Commission was of the opinion that the issue was one which our courts would eventually solve. Two decades on and the intricacies of security cessions of life policies have seen no further judicial development. The rationale for this work is based on the premise that judicial advancement has been hindered due to a lack of practical information. It is for this reason that an empirical exploration was undertaken. The goal of such an investigation was not only to provide answers to a handful of theoretical questions, but also to reveal whether the Commission’s decision against legislative intervention was short‐sighted.

Table of Contents :

• CHAPTER 1: INTRODUCTION
  • CHAPTER 1: INTRODUCTION
    • 1.1 Backgroun
    • 1.2 Methodology

• • 1.2.1 Overview
  • 1.2.2 Research question
  • 1.2.3 Data collection method
  • (i) A case study
  • (ii) The respondent
  • (iii) The questionnaire
  • 1.2.4 Delimitation
  • 1.3 Structure
  • 1.4 Findings
• CHAPTER2:CESSION
  • 2.1 The nature of cession
  • 2.1.1 Cession in Roman and Roman-Dutch law
  • 2.1.2 A Method of transfer
  • 2.1.3 The obligationary agreement
  • 2.1.4 The transfer agreement
  • 2.2 The debtor’s involvement
  • 2.3 Consequences of a cession
  • CHAPTER 3: INSURANCE
    • Introduction
    • 3.1.1 Indemnity insurance
    • 3.1.2 Non-indemnity insurance
    • 3.2 The nature of life insurance
    • 3.3 Types of life insurance products
    • 3.3.1 Term life insurance
    • 3.3.2 Whole life insurance
    • 3.3.3 Pure endowment insurance
    • 3.3.4 Life endowment insurance
    • 3.3.5 Annuity
  • CHAPTER 4: SECURITY CESSION OF A LIFE POLICY
    • 4.1 Security
    • 4.1.1 Types of security
    • 4.1.2 Purpose of security
    • 4.1.3 Rights under a life policy as the object of security
    • 4.2 Traditional pledge
    • 4.3 Cession by pledge
  • CHAPTER 5: FOREIGN PERSPECTIVE
  • CHAPTER 6: RESULTS, CONCLUSIONS & RECCOMENDATIONS
    • 6.1 Introduction
    • 6.2 Insurance companies
    • 6.2.1 Construction
    • 6.2.2 Notice
  • CHAPTER 7: SOLUTION: LEGISLATION
  • 7.1 Introduction
  • 7.2 Proposed legislation
  • 7.3 Discussion of legislative provisions: Pledge

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