When is a guaranteed premium not?
When the fine print makes words flexible
Life assurance policies make use of terms that may give you a false impression about your contract, because the fine print reveals that words like "guarantees" and "permanent" are not what they seem.
Policies are often sold with guarantees on the premiums - designed to give you certainty about what you pay for at least the first few years, but guarantees aren't always full guarantees.
According to one life company, some of its competitors give guarantees that do not apply to increases in premiums. As a policyholder you may agree to a premium increase annually to buy more cover and ensure your cover keeps up with inflation.
In a survey BrightRock did of eight competitors it found that five granted premium guarantees for the first 10 years that did not apply to these premium increases. Instead, these life assurers are pricing the increase in cover according to how old you are when the increase is applied - the guarantee against age-related increases does not apply to the new cover bought, BrightRock CEO Schalk Malan says.
Petrie Marx, product actuary at Sanlam Individual Life, confirmed Sanlam age-rates premiums applied for increases in cover.
Malan says BrightRock also found that the fine print in life assurers' policies allows them to increase guaranteed premiums if there is a change in legislation.
This is the case for Old Mutual and Momentum but Marx says Sanlam will only adjust premiums for legislative changes at the end of the guarantee period.
Guarantees may also fail to keep your premiums predictable if the assurer has a complex loyalty programme, with a plethora of milestones you need to meet.
Discovery Life has 26 different variables that could affect the final premium, Malan says. However, Gareth Friedlander, the head of research and development at Discovery Life, says increases resulting from integrating your life policy and Discovery's Vitality programme are in your control if you make healthy choices.
Friedlander says if you reach the top two tiers of Discovery's Vitality programme, your premiums will never increase by more than the contracted increase.
Marx says while Sanlam's rewards programme does affect premiums, you will never pay more than the premium you would have paid if you hadn't joined the rewards programme.
Another misconception you may have is that an income protection policy that promises to pay you a monthly income on "permanent disability" will continue until your cover ceases, for example, at retirement. But many life assurers will stop or reduce your monthly income payments if you recover from a disability that was initially deemed to be "permanent" and start earning again.
Malan says it is unfair that policyholders can have similar conditions and the one who makes no effort to earn an income will continue to be paid under an income protection policy, while the policyholder who starts earning again is penalised.
Both Momentum and Discovery say if you have income protection against a loss resulting from a defined impairment, such as the loss of a limb, it will pay until the age at which cover ceases.
But if your disability is assessed in terms of your ability to do your occupation, the payment could be halted or reduced depending on your loss of income.
Old Mutual, Sanlam and Liberty say they may want proof you are still disabled and not earning and can stop your income protection payments if you return to work.
Period of survival
Another clause in the fine print of severe illness policies to watch out for is that relating to periods after an illness or an injury that you need to survive before your claim will succeed.
Most critical illness and injury policies require you to survive a period of between 14 and 30 days - typically without life support - after an injury or diagnosis, especially when an illness is terminal.
Malan says blanket general survival periods are "an onerous, outdated requirement" and the additional expenses you incur after a critical illness or being injured do not start 15 days after the event.
Comparing premiums is difficult
There are some things you should understand about your life, disability and severe illness cover.
Life companies have different premium patterns or ways in which premiums increase on policies offering you cover for disability, death, severe illness and income protection. These premium patterns often make comparing initial premiums a futile exercise.
Cover can be level or increase to keep pace with inflation - if it increases, your premiums will increase too. That increase can be at a set rate or in line with your age - which is related to the risk of you dying, being disabled or contracting a severe illness.
If the premiums are set to increase with your age, you need to know how the assurer will apply those age-related increases and whether there are periods during which the premiums are guaranteed.
If your cover increases, your premiums increase by more. It is possible to get a fixed level of cover at a fixed premium, but then your cover level will decrease by inflation each year.
To keep your premiums low, especially when you are younger, life companies often give you the option of taking premiums that accelerate as you age. The policy will escalate at a low level in your younger years but the increases may become quite steep as you get older.
You need to consider how long you want to keep the policy, whether you want certainty about your premiums and the cover you need.