Some industries are going into the fifth month of lockdown with no end in sight. If you are still not earning an income or still earning only part of your normal income, there are ways to keep your life insurance policies at a time when Covid-19 deaths are climbing daily. 

Life insurers are extending the premium relief measures they introduced when the lockdown began in March to the end of August or September for those who remain in financial difficulty or find themselves now in difficulty as a result of the lockdown. 

So what are your options?

Premium pause 

You can apply for a premium waiver where you take a holiday from paying premiums for three months but this means your cover will also be suspended and should you die, you would have no life cover. 

One of the benefits of reducing your cover or asking your life insurer to pause your premiums temporarily, is that your insurer may allow you to later reinstate your initial cover amount without subjecting you to new medical tests and questions (underwriting) that could result in higher premiums or exclusions.

Liberty’s relief measures on life insurance products are in place until the end of September this year, and the company is considering a further extension as the lockdown continues indefinitely, David Jewell, managing executive retail risk at Liberty, says.  

He says the company implemented the premium pause option for approximately 2% of their policies. Around 30,000 Liberty clients with funeral cover opted to pause premiums. 

“We are still receiving new applications for a premium pause – but it has slowed down significantly.  Applications peaked during May, which means that most of those policyholders are still within their premium pause period.  

“We do expect that some of them will apply for a second premium pause option because the industries they are working in are still closed under lockdown Level 3,” Jewell adds. 

George Kolbe, head of retail life insurance marketing at Momentum, says when Level 5 lockdown was introduced, some policyholders were unable to pay any premiums and risked losing all their life insurance cover.

However, Momentum allowed you to temporarily pause your life insurance premiums and cover for three consecutive months while guaranteeing that you would be insured at the same level if you automatically resumed paying your premiums. 

During the pause period, Momentum provided these policyholders with 20% of their life cover ex gratia to a maximum of R3m. However, this premium relief expired at the end of June.  

Kolbe says policyholders working in industries that remain closed under the current lockdown level, have until the end of August to apply for a three-month premium pause. 

Reduce your cover

The second option is to temporarily reduce your life cover for three to six months, which would automatically reduce your premiums. This temporary reduction may provide you with financial relief, but you should be careful. 

Remember that if you die and your family claims on the policy while the cover is reduced, they will only be paid out the reduced amount. 

For example, say your life cover was R3m but you applied for a reduced premium and your cover reduced to R1m. If you die while the cover is reduced, your family will only receive a payout of R1m. 

If you request premium relief from Liberty, but do not specify how long you will need relief, the relief period will be applied for six months. 

If you want a shorter relief period, you must specify this upfront. Jewell says just over 10,000 clients have opted to reduce their cover. 

“Approximately 60,000 clients made use of premium relief options on investment products. Of these more than 35,000 clients requested relief from us, and relief options were automatically initiated for the balance when we were unable to collect premiums,” he says. 

What should you do?

John Manyike, head of financial education at Old Mutual, says the number of policyholders who applied for premium relief was low compared to the total number of policyholders, and of these, a number adjusted their cover rather than allowing their life insurance policies to lapse. 

People have tried to rearrange their finances, opting only to reduce or cease their life cover as a last resort, Manyike adds. 

Jewell warns against cancelling your life insurance during the current economic downturn. 

“We would encourage policyholders to explore every possible option to ensure that they maintain their cover to protect them, their families and their businesses financially if the worst happens,” he says.

Rather reduce your cover than lose it altogether, but discuss your options with your financial adviser so you understand the impact this can have on your financial planning,” he says.