As South Africans come under increasing financial pressure in the current economic climate, some are simply unable to afford their monthly premiums on their life insurance policies.

According to Chris de Klerk, Corporate Actuary at PPS Insurance, it is crucial to talk to your financial advisor or insurance company before you stop paying your premiums. "Making rash, short term decisions can cost you a great deal in the long term."

He says policyholders must check whether their insurer permits them to take a premium break on their insurance benefits.

With risk only policies (where there is no savings component), most life companies allow you up to three months grace to catch up on your premiums. However, it is best not to miss your premium payments as you run the risk of your insurance policy lapsing. If you fail to pay your outstanding premiums in this grace period, your cover will likely lapse effective the date of your last premium payment.

If you then decide a few months later to re-instate your cover, you will probably have to take out a new policy. Your premiums may well increase, especially if you had a level premium policy before. Your policy may also have additional loadings if your health has deteriorated from when you took out your previous policy. While it may not affect your premium directly, you may also have additional exclusions added on your new policy.

De Klerk says that if you have a universal life type policy (i.e. one where there is a savings component to the premiums) the life office may, on non-payment of your premiums after a waiting period of three months, draw the premiums from the investment value of your policy.

While this means the investment value of your policy will decrease, your policy stays in force and your life cover will stay intact. It is best to check the policy wording of your contract to ensure that your insurer will draw on your investment value to keep your policy in-force. If your investment value is insufficient to cover your outstanding premiums your policy will lapse.

He cautions that often rules can vary depending on the type of cover you have in place. Some insurers, for example, allow you to apply for a premium break of up to 12 months on sickness and dread disease cover. During this period your benefits will be suspended (i.e. you cannot claim against these benefits). Once you start paying your premiums again your risk benefits resume, after a waiting period of three months, without penalties or the need to go through underwriting.

De Klerk says it is important to consider your health if you are looking to reduce your benefits in the short term. "If your health is poor, it may be difficult to apply for additional cover in the future when you can afford it more."

Another tip is to look at premium payment options. "Some life companies offer different premium patterns, which can reduce the cost of your cover in the short term if absolutely necessary. It’s also important to bear in mind that cheaper risk cover now is likely to mean much higher premiums later on, although it remains a better alternative to not having cover at all."

Some companies also offer a discount if you pay your premiums upfront, instead of monthly. This can reduce your insurance bills, if you can manage the immediate cash flow needs.

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