29 January 2013

Uganda: Negotiating Life Insurance Premiums


An insurance premium is simply the fee you pay towards your insurance policy.

Unlike premiums for other types of insurance like motor insurance, which is a once-off payment, life insurance premiums are usually payable over a longer period: monthly, half yearly or yearly. A common question that often arises is: since life insurance premiums are payable over a long period, say 20 years, what happens if one cannot suddenly afford to pay them?

What would happen if, for example, Mrs Kiwanuka loses her job and cannot afford to pay her life insurance premiums, 15 years into her agreed payment term?

Depending on the period of time the policy has been running, a number of options are possible. Mrs Kiwanuka's policy could 'lapse'. A policy is said to have lapsed when the policyholder fails to pay subsequent premiums, and before the policy acquires a 'surrender value'. A surrender value provides another option for Mrs Kiwanuka. This is a premature claim which occurs when the policy, usually for lack of funds, is stopped by non-payment of premiums.

The policy must, however, have run for at least a certain period, as initially agreed upon with your insurer. The surrender value is less than both the sum assured (money paid out when a policy matures), and the total premiums contributed in view of the expenses incurred like medical fees and administrative expenses.

However, the best alternative for Mrs Kiwanuka lies in a paid-up policy. In this case, the policyholder does not lose any part of their contributions. The total premiums already contributed are applied to purchase a new life insurance policy with a lower payout at the original maturity date. No further premiums are paid.

The chance of losing out totally on contributions made towards a life policy due to the sudden inability to afford the premium payments may be enough to shun buying life insurance altogether. However, before losing hope entirely, it is important to ascertain with your insurer what would happen if you fail to pay the demanded premiums.

There are always options that allow one to salvage part of their contribution in case of financial adversity.

The author is a Chartered Insurer and works with the Insurance Regulatory Authority of Uganda.

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