Questions you should ask

When you take out a life assurance policy, you would do well to ask some questions about the premiums, Peter Dempsey, the deputy chief executive of the Association for Savings & Investment SA, says.

You should first ask yourself how long you want to keep your policy, and consider whether you want to have certainty about the premiums you will pay and the amount of cover you will enjoy over the term of the policy, Dempsey says.

Then ask the life assurer, or your financial adviser who presents you with quotes, to show you how the premiums and the cover will change over the life of each policy, he says.

Weigh up the total cost of the premium on the policy that gives you the certainty you need for the period you require the policy and assess its affordability, Dempsey says.

If the premium is not affordable and you need to accept a premium guarantee or review to make it more affordable, find out what the policy contract states about the terms of the premium increase at the end of the guarantee or on review, he says. policy if he had known he would be in for an increase of more than 50 percent 10 years later, he says.

In 2006, five years after Mr A took out his policy, the Association for Savings & Investment SA (Asisa) introduced a Code of Policy Quotations that forces life assurers to disclose how premiums may increase at the end of a contracted term or premium guarantee (see “Disclosures on future increases”, left).

Peter Dempsey, the deputy chief executive of Asisa, says if you buy a policy with a premium that is set for a period shorter than the term of the contract, you must understand the basis on which the assurer will re-price the contract: will it consider your age or other factors, such as how much it has paid out in claims?

There are no laws, regulations or codes that limit the increases life assurers may impose when they re-price contracts, Dempsey says. If your policy has a guarantee period, check the contract to see whether or not there is limit to the increase that may be imposed thereafter, he says.