Payment of Premiums

The policyholder can often choose whether to pay premiums annually, or at six-monthly, quarterly or monthly intervals. Premiums are normally calculated on the basis that they are paid annually in advance, so that the payment at shorter intervals means the company receives less interest and incurs more expenses than on the annual basis. Monthly premiums therefore carry a loading of 2-6% over annual premiums.

Monthly premiums may be on a "true" or an "instalment" basis. In the latter case, if the assured dies between two policy anniversaries the balance of a year's premiums will be deducted from the policy proceeds. No such deduction is made if the policy is subject to "true" monthly premiums.

The frequency of premiums also affects what are quaintly known as the days of grace. These refer to the period during which the company will continue to maintain the policy in force without altering its terms if the premium due has not been received. In the case of annual premiums, there are 30 days of grace; if premiums are paid monthly there are fewer, often about N5. So long as the premium is received within this period (which is stated in the policy document) the terms of the contract remain unaltered. If a claim is made during this period, it will be met and the premium overdue deducted from the sum assured.

At the end of the days of grace the position changes. Policies which do not have a surrender value (term assurances, FIB) and policies which have not yet acquired a surrender value, automatically lapse, that is, the cover ceases. Companies may allow the policy to be revived on payment of the premiums omitted with interest and a revival fee; they may also require a declaration that the policyholder's health is unimpaired, and evidence of this from his doctor may also be required (such a declaration of health may also be required, incidentally, if there has been long interval between proposal and the completion of a policy).

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Occupational Risk

Leisure activities pursued by the proposer may also add to the risk involved for the life office. Flying (as a pilot), gliding, rally driving and mountaineering are among those that some offices will regard as requiring an addition to the normal premium.

As an alternative to an extra premium, an office may agree to apply a "debt" to a policy and this means that in the event of death they will deduct an amount from the sum assured; this amount may be fixed or it may reduce year by year over a fixed term. In effect, a proposer backs himself against the underwriter's judgement. While this solution... see: Occupational Risk

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