To help you plan ahead for your insurance premium increases we’ve found out all you need to know so you can have some clarity when it comes to your insurance policy.
What is a premium increase?
A premium increase - also sometimes called an escalation - is the amount your monthly premium will increase by on a certain date. This may be a set amount such as R100, or a percentage such as 5%.
An example:
You pay R250 a month for R750 000 life cover.
Your premium increases by 5%, so the premium increases by R12.50 to R272.50.
Why do premiums increase?
There are two main reasons:
1. Your risk changes
Your long-term insurance premium is calculated by your insurer based on the risk (probability) of you having an accident, becoming disabled, suffering a dread disease or passing on earlier than expected. Insurers will look at your age, health, occupation and other factors to determine this risk.
If your risk changes, your premium may change. An example of this is aging – we are more likely to become ill as we get older, so premiums are increased to cover this risk.
Another reason your risk may change is if you take up smoking, which can reduce your life expectancy. Of course, if you give up smoking you may qualify for a lower premium!
So, risk is why most long-term insurance premiums increase over time.
2. Your cover increases
When your sum assured increases you have more cover, and this increased amount of cover will cost you a little more.
Some policies have built in annual increases in cover such as the sum assured increasing by 3% each year. There are pros and cons to this. The pro is that it means your cover can increase without you having to undergo any further underwriting. However, the con is that the increase percentage may not reflect your true insurance needs. For example, your cover may increase by 3% each year, say R30 000, but if you have another child your insurance need may increase by R150 000 in one year.
When do premiums increase?
Either on the policy anniversary or the date from which your cover increases. The policy anniversary is the date on which your policy first became effective. Your insurer should advise you at least 31 days in advance of when the increases are due, so make sure they have your correct contact details on file.
Do claims affect premium increases?
They shouldn’t on long-term insurance such as life cover and dread disease. A claim is the payment of all or some of the sum assured. If you have a death claim, then the policy is no longer active once the claim is paid. If you have a claim on a dread disease or disability insurance policy the policy can pay out a partial amount. This would also not affect the increase and in some cases the premium may decrease.
What if I can’t afford the premium increase?
Talk to your insurer so you can make a plan. Insurers know how much financial pressure South Africans are facing and want to find alternative arrangements so you can keep your policy in place. In some cases, if the premium is not increased, the cover amount might be reduced. But some cover is better than none – especially in the case of an emergency or unexpected event.
What are the most important things I need to know?
Different policies will have different increases at different times. So, you need to know:
1. What premium increases apply to my policy?
2. When do they become effective?
3. How much will they be?
4. Will my cover change?
These details will be in your policy schedule, or you can ask your insurer or financial advisor. When you know the answers to these questions you can plan ahead and budget for increases or talk to your insurer about an alternative arrangement.
How do premiums increase on my 1Life policy?
1Life does not increase your sum assured each year, instead our policies have a guaranteed assurability benefit that allows you to increase your sum assured by a specified amount or percentage within a certain time, without having to go through medical underwriting. Guaranteed assurability benefits can be taken up when a significant life event happens, such as buying a house, getting married or having a child, or on your policy anniversary. This benefit is valid for three months from the event or your anniversary. If you increase your cover using the guaranteed assurability benefit your premium will increase.
1Life Life, Dread Disease, Female Dread Disease, Disablement and Expense Protector policies
The premium is guaranteed for the first 24 months of your contract. This means that your premium won’t increase in the first two years of the policy, unless you choose to increase your cover.
Your premiums will increase by 5% each year after that, because your risk increases as you age, on your policy anniversary date. This is our annual escalation rate that we review every five years. The cover amount stays the same.
1Life Funeral policies
Your premium will remain the same unless your cover changes, you add a member or your risk changes. You can find the details for your policy on your policy schedule.
Final thoughts
It’s good to have clarity when it comes to your finances, so you know how much you need to budget for and when. Check your policy to make sure you know when premiums may increase and talk to your insurer or financial advisor if you have any questions.
