YOUR MONEY: I need help with my pricey insurance policies

We recently ran a question, in which a reader wrote:

“I have an issue with life policies in which children are beneficiaries. These are the only things I have to leave my children, as I am an unemployed widow, aged 82. The cost of the premiums is rising but the policy values aren’t, as they were taken out a long time ago. I am finding it difficult to maintain them but don’t want to lose them. The insurance companies are totally inflexible to a moratorium on premium increases, or releasing the policies now before my death, so I’m stuck between a rock and a hard place.”

Answer: Virath Juggai, Gradidge Mahura Investments

It would be ideal to provide an opinion with sight of the actual policy document. However, it seems these are “old generation” policies with compulsory premium escalation but no cover escalation. Due to the “old generation” nature, most insurers have unfortunately closed off the administration platforms so it is impossible to make changes, such as adding a cover escalation.

I would check if the policies had an investment or cash value in addition to the life cover. Due to their “old generation” nature, it is possible there is an investment element to the policy. If so, the insurer may allow for the policy to be made “paid-up”. This would mean that the insurance premium can be collected from the investment value, thereby relieving the policy owner of monthly premium commitments while keeping the life cover active.

It has been our experience that policies taken 30 or 40 years ago were structured with this facility.

As regards the insurer granting a possible accelerated payout, most insurers do link a “terminal illness” benefit to life cover policies. This would allow for the payment of part or the whole policy (depending on the insurer) if the insured life was diagnosed with a terminal illness and there was medically no prognosis of a recovery. In these instances, the insurer would accelerate the payment of the life cover to the insured, thereby allowing them to use the proceeds as they pleased.

Due to the surmised “old generation” nature of these policies though, it is possible this benefit is not available on this product range.

Another idea, if possible, would be to change the premium payer from the reader to their beneficiaries. They will receive the proceeds of the policy as a payout so they could approach this as an “investment”. This would relieve the reader of the premium payments, and the beneficiaries could keep the benefit active. The insurer should be able to facilitate this. It is something that we’ve assisted clients in setting up in the past. The reader would need to satisfy herself that this would not encourage undesirable behaviour from the beneficiaries, and that a bona fide arrangement can be put in place. She would have to discuss it with them and get their buy-in.

* Juggai is a certified financial planner 

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