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					Consumer Education Article
The Life Offices’ Association (LOA)
Date: 10 April 2007

Is your life insurance premium guaranteed?

When you took out your life insurance policy or signed-up for disability or dread disease
cover, did you opt for a premium that could change at any time, a premium that is guaranteed
for a certain number of years or a premium that carries a compulsory increase?

Gerhard Joubert, CEO of the Life Offices’ Association (LOA), says policyholders often do not
realize that guarantees may apply to their premiums or that life insurance companies are
entitled to increase risk cover premiums at the end of the guarantee period.

Generally, where premiums are guaranteed for a certain period, your contract will refer to a
review date. Joubert explains that on this date the life company will review the premium you
are paying and may decide to keep it the same, or increase or even decrease it to reflect
changes in claims experience.

Available premium options

In recent years South Africa has seen a move away from life insurance products that combine
savings and risk insurance to stand-alone risk products providing cover for events such as
death, disability, functional impairment and dread disease.

And, says Joubert, together with the introduction of stand-alone risk products came a new set
of premium guarantees.

Before you decide on a guarantee when taking out risk cover, you first need to choose any
one of the following premium paying patterns:

•      A level premium with no contractual increases.
•      A level premium with an annual inflation related increase.
•      A level premium with a fixed annual increase, for example 5%.
•      Premiums with compulsory increases as you age.

Joubert explains that once you have selected a premium paying pattern that best suits your
needs, you can opt for a premium guarantee of up to 20 years for life cover or between 10
and 15 years for any of the other risk cover products.

Pros and cons of premium guarantees

Joubert explains that the main benefit of opting for a guaranteed premium is the certainty of
knowing that premiums will not change for a fixed period, except for the increases you opted
for when you selected a premium paying pattern. This means you should be able to afford the
premiums for that period. However, as with most guarantees, you generally pay more for this
peace of mind.

Your other option is to sign up for a policy where premiums are not guaranteed. Although
usually lower, they may increase if the life company notices a long-term change in claims
trends.

Joubert points out that until now South African life companies have not imposed premium
increases on their policyholders, but points out that this could change going forward.

Reviewing premiums

Joubert says it is important to realize that premium increases at the end of the guaranteed
period are not determined by your age or medical status and that you do not need to undergo
new medical examinations and blood tests.
“Unless you have opted for compulsory increases where you benefit from low initial premiums
that escalate as you age, premium increases will never be applied to you as an individual, but
always to the group of policyholders that fall within the same risk pool.”

Joubert provides the following guidelines:

•       Familiarise yourself with the premium guarantee periods that apply to your policy –
         the premiums could be guaranteed for a defined period only (and then be subject to a
         review).
•       Depending on your policy the review of premiums at the end of a guaranteed period
         may be subject to different conditions – make sure you are familiar with these
         conditions.
•       When taking out a new policy ask your financial adviser about the various available
guarantee options.
•       If you are unsure about the type of premium you are paying, contact your financial
adviser.
•       Premiums with compulsory increases as you age may enable you to benefit from
         lower premiums while you are young and starting out. But, you also run the risk of no
         longer being able to afford the premium when you are much older and in greater need
         of life, disability or dread disease cover. You may also have developed a medical
         condition, which may make you uninsurable, preventing you from applying for new
         cover.

Ends

Issued by:
Lucienne Fild
Independent Communications Consultant
082 567 1533
lucienne@mweb.co.za

The LOA is the trade association for South Africa’s long-term insurance industry. Its 36
member companies provide over 95% of the insurance business in South Africa and its
members administer assets in excess of R1-trillion. The LOA represents insurance
companies to the Government, Parliament, and to the regulatory and other agencies, and is
an influential voice on public policy and financial services issues. The LOA also plays a self-
regulatory role as far as the long-term insurance industry is concerned by way of the LOA
Code of Conduct which can be accessed via the LOA website at www.loa.co.za.