COVID: What if you can’t afford your insurance premiums?

Since entering the lockdown, many South Africans have struggled to meet their financial obligations. In some cases, they’ve had trouble meeting their insurance premiums.

Will your insurance provider reduce your premiums during this time? In this part of our Covid-19 Content series, we got in touch with a range of insurance specialists to find out more.

Tip: Get a home insurance quote and find out whether you could be paying less each month.

What does the ombudsman think you should do?

The Ombudsman for Short-Term Insurance (OSTI) acts as a watchdog in the short-term insurance industry, where complaints can be submitted and disputes will be investigated.

According to Ayanda Mazwi, senior assistant ombudsman at OSTI, the lockdown measures and its financial implications are unprecedented.

“There are no specific regulations concerning short-term insurance premium payment holidays. The general rule is that you won’t enjoy cover for the month in which the insurer didn’t receive a premium. The insurance industry will require innovative solutions during this nationwide crisis,” says Mazwi.

“Proactive insurers will likely make appropriate provision for their customers – as we’ve already started to see in the industry,” she adds.

Mazwi points out that the Policyholder Protection Rules makes provision for a minimum of 15 days grace period for the payment of premiums after the relevant due date. She believes insurers may, at their discretion, extend this period so that consumers may enjoy the cover, and catch up on any unpaid premiums without the cover lapsing. 

“Our advice to consumers is to be proactive. If for any reason you are or will be in financial difficulty and you’re unable to pay your insurance premiums, contact your insurer directly and explore which options may be available to maintain essential cover,” says Mazwi.

“If you simply stop paying your insurance premiums, your cover will lapse or be cancelled. The negative consequence of this scenario is that you may find yourself in an even worse financial position should you suffer a significant loss,” she explains.

Mazwi adds that another consequence of interrupted insurance is that it may affect how a prospective insurer, in the future, will calculate your premium on a new policy.

If you’d like to report misconduct within the short-term insurance industry, follow this link and get in touch with the ombudsman for assistance.

What do other insurance experts think you should do?

According to Karen Bongers, product development actuary at Sanlam Individual Life, you should find out from your insurance provider or financial planner whether relief options are available.

“Risk cover is important, especially during a time where your future health is uncertain, so simply lapsing your risk policies won’t be in your best interest,” says Bongers.

Rather, she recommends seeking alternative options. If not, and affordability remains a problem, consider reducing rather than completely lapsing your cover, to still retain some level of cover.

Bertus Visser, chief executive of Distribution at PSG Insure, points out that payment arrangements may be possible, depending on your insurer and any Covid-19 relief measures that have been put in place.

“Some insurers are reducing motor vehicle cover temporarily or delaying renewals. Keep in mind that insurance cover, though costly to pay for if you never need to claim, can be so much more affordable in the end, should you ever need to claim,” says Visser.

He agrees with Bongers that keeping communication open is the best way to formulate a plan to keep your cover consistent.

READ MORE: Keep this in mind when taking out new financial products.

Which options are available to you?

According to Dr Nolwandle Mbalo, head of Standard Bank Insurance, clients have the option to re-structure their insurance policies. For example, with car insurance, a client may move from comprehensive insurance option to third party, fire, and theft option, or third-party liability option, or even to total loss option.

“These instances will help reduce the premiums significantly. In some instances, the client may opt for a higher excess in order to reduce the premium. However, a higher excess may be a burden for a client later when a claim arises,” says Mbalo.

“Another option is to review the items required to be insured for appropriateness. For example, the list of all risk items might be outdated, or not all the items are deemed critical for insurance purposes.  Reviewing the sums insured of each item on the policy for accuracy could also lead to changes in the insurance premium,” she explains.

Ryan Copeland, managing director of VCIB, emphasizes that if you can’t afford your premiums because of the lockdown regulations, you should inform your insurance broker.

“Your broker will be able to advise you on what cover you should or shouldn’t reduce, the risks involved as well as what your insurance company is offering in terms of financial relief during this period,” says Copeland.

He explains that there are various options to consider which will reduce your premium. Increasing your excess is one way to reduce your premium. However, it will mean that a higher amount would need to be funded by you in the event of a claim.

“Consolidating your insurance is another option if you have multiple short-term policies. Reducing your car insurance is another option. But bear in mind, some insurers may exclude hail damage if a vehicle is not insured comprehensively,” says Copeland.

“It’s not recommended that you reduce your contents cover as you may be underinsured in the event of a claim. It’s important to note that whatever changes you make during this period, must be reviewed post lockdown to avoid any potential future compromise in your cover,” he explains.

Which mechanisms should you consider?

Marius Botha, managing director of Stangen, says that there are various mechanisms in place to support customers by helping one another to "share the load" versus simply transferring the load between the insurer and the customer as a result of Covid-19. 

“Some of these are aimed at supporting good faith clients who have paid their premiums for years and have suddenly been impacted by the pandemic where the priority focus is to retain the relationship with that customer,” says Botha.

“Others are designed to prevent anti-selection risk or bad faith customers from abusing the situation and to protect the overall health of a life insurance company and its solvency, so that it can continue to create jobs and support the broader economy,” he explains.

He considers the following mechanisms:

1. If you’re a new customer who recently applied for life insurance, the commencement date on the policy can be deferred to a later stage if you can't pay your premium now whilst keeping your current medical underwriting and "approved application" live. In other words, you don't need to re-apply for cover if you start paying your premiums within a limited period of time. For example, what can be allowed is a deferral of up to 12 months of the commencement date after an approved application if you’ve completed an HIV test.
2. As an existing customer, you may elect to have another party pay your premium on your behalf (with their consent) to keep your cover active. For example, if your partner can support your obligations for the foreseeable future.
3. You may elect a "double debit" in the following month to keep your cover active if the disruption was for a short period of time. For example, you were only impacted by Level 5 restrictions and can work again under Level 4 restrictions.
4. You can restructure your policy to a lower cover amount and lower premium, and then increase your cover amount at a later stage if your situation has improved.
5. Some companies offer "grace periods" on the full cover amount if a claim arises soon after the last premium was received and your policy went into arrears. Typically, the premiums due to the company would be deducted from the benefit amount paid out if the claim was approved on all other grounds. In general, a one-month grace period can be offered if you've paid your premiums consecutively for three months.
6. If you can demonstrate loss of income as a direct result of Covid 19 and the lockdown your insurer may grant you a premium waiver. Your cover will remain active for the month without any obligation to pay the premium and without any set off against a claim should it arise.
7. Some insurers also offer reinstatement of a policy of up to six months from the last termination date of cover, without a need for renewed medical underwriting, if you experience a longer period of loss of income.

To access other parts in our Covid-19 Content series, click here.