Reduce your life cover rather than losing it if you can't pay

You should never skip paying life assurance premiums for essential cover that protects you from being unable to earn if you are disabled or your family if you die. 

But these are extraordinary times, and if you have been put on short time, unpaid leave or had your salary cut you may well be facing financial difficulties.

Owners of businesses and other self-employed people forced to stop operating during the lockdown, may also be facing a cashflow crisis. 

Your need to turn first to your budget and cut wherever you can – especially the non-essentials.

Your life and disability cover should be one of the last things you consider cutting, but if you have no choice, you should try to reduce your cover before stopping it altogether, the life assurers say.

If your policy lapses and you later want to reactivate it, your life assurer will reassess the risk of you claiming – you will be older and you may have picked up some health issues since you first took out cover. This could increase your premiums and even lead to cover for death or disability from some conditions being excluded.

Some life companies allow you to skip a premium or two without losing or lapsing your cover, but if you don’t pay after these grace periods, your policy will lapse.

To help you if you are in financial distress in the next few months, life assurers are offering you the option to temporarily reduce your cover and your premiums and to reinstate your cover without your risk being re-assessed.

Remember, however, that the offers differ from company to company and are only for the unusual times brought on by the coronavirus and the lockdown.

Sanlam, for example, will let you reduce your life, disability and critical illness cover by half to make your premiums more affordable, Karin Muller, the chief executive of Sanlam Life, says. You must do this before July 1. 

If you increase your cover back to what it is now within three to six months, Sanlam will not ask you for any more medical information and won’t adjust your premiums. 

Momentum, Old Mutual and Liberty also told Money they are allowing you to reduce your premiums during this time of financial stress. 

David Jewell, Liberty’s executive for retail solutions, says Liberty Lifestyle Protector policyholders will be able to reduce their premiums for six months and then increase them again without more medical tests and repricing.

Old Mutual told Money its policyholders will be able to reduce cover, remove additional benefits to reduce cover to its core and pay annual premiums monthly. 

If you are not able to pay even a reduced premium, remember policies allow you a grace period. For Sanlam policyholders it is a month, while Liberty gives you two months. During this time your cover remains intact, Muller says. 

If you exhaust your grace period, the life companies are for the next few months offering extended periods during which you can reinstate your cover by starting to pay your premiums again without having to do new medicals and without new premiums being set.

Sanlam will allow you to suspend your premiums for up to three months and then reinstate your cover if you were up-to-date with your premiums to the end of March and you were paying by debit order when you defaulted.

You will enjoy full cover during the grace period and during the remaining two months, you will enjoy limited free ex-gratia cover should you need to claim. 

This will cover a quarter of your death and disability benefits paid as a lump sum if you are unable to do your job, up to a maximum benefit of R5-million.

There are some T&Cs especially on the disability claims and the benefit does not extend to funeral cover, or other benefits, so make sure you keep paying those premiums if you want to maintain all your cover. 

After the premium holiday, if you pay your premium in the fourth month, your cover will be automatically reinstated without you having to pay the arrear contributions, Muller says.

Old Mutual says it will allow you to restart a policy that lapses between now and June 30, within three months of the lapse date, without a declaration of health.

The life assurer says while it currently allows you to restart your cover twice, it will now allow three revivals.

George Kolbe, head of marketing for Momentum Life Insurance, says you should discuss your options with your financial adviser so you are sure you understand the implications of not paying your premiums. 

If you need to update your life cover most life companies are accepting applications and allowing you to sign digitally but are delaying any medical tests until after the lockdown.