OPTIONS YOU SHOULD BE AWARE OF
By Andró Griessel
06/06/2026
Many readers of this column have undoubtedly received a letter from an insurer over the past year regarding a policy’s premiums and benefits. One of our clients recently received such a letter concerning a life insurance policy.
In the insurer’s words: “Unfortunately, your current premium is no longer sufficient to maintain your benefit cover. If you do not adjust either the premium or the benefit amounts, the policy will terminate once the surrender value has been exhausted, and you will lose the valuable benefits provided by the policy.”
The insurer then presents four proverbial doors through which the client may walk, offering four possible options without any guidance as to which would be the most suitable. The recommendation is simply that the client consult their financial adviser before making a decision.
In this particular case, the four options were as follows:
- Increase your premium from R11 295,39 to R14 113,59.
- Change to an age-based premium structure, starting from R11860,16.
- Reduce your life cover from R1 000 000 to R840 336,13.
- No change: Continue paying your current premium for your current benefits and allow the policy to lapse once the surrender value is depleted.
Before discussing the various options, some context is important:
- The policy was taken out on 01/07/2001 and is therefore already 25 years old.
- The premium is an annual premium for R1 000 000 of life cover on the life of a 66-year-old.
- The policy already includes a compulsory annual premium escalation of 5%, while the cover amount remains unchanged.
The option many people tend to choose (if they choose one at all) is often based on the question, “Which option costs me the least today?”. The more important question should be, “Which option gives me the highest probability of still having and being able to afford this cover in 10, 15 or 20 years’ time?” This is where many policyholders run into trouble.
Option 4: The Trap of “No Change”
The default option offered by the insurer, if the client takes no action, is the fourth option. Because there are two ways this option can come into effect—either consciously or through inaction (whereas all the other options require deliberate action)—and because many people simply are not good at administrative tasks, I suspect Option 4 is probably the most frequently selected. It therefore comes as little surprise that this is by far the worst option.
If the client in this case chooses Option 4, or fails to make a selection before the deadline, nothing initially changes. However, approximately four years from now, they will receive a letter informing them that both their policy benefits and premium have lapsed.
They therefore lose 100% of their “investment” in this estate asset after having paid premiums for approximately 30 years by that stage. For anyone who actually reads the letter, it should not be difficult to identify the dragon lurking behind Door 4. But what about the other three options?
Option 1: The Immediate Premium Increase
Many policyholders accept the premium increase because it preserves the full amount of cover and the increase (approximately 25%) appears to be a once-off adjustment. However, the fine print often receives less attention.
In many cases (including this one), the increase only purchases another year of premium certainty. It is therefore entirely possible that you could receive another review letter next year or two years later. Unfortunately, this option buys no real certainty while requiring you to pay 25% more immediately for the same cover.
Option 3: Reduced Cover
At first glance, this option appears attractive because the premium escalation remains unchanged (currently 5%) and nothing changes except the level of cover. However, the policyholder permanently and immediately gives up approximately 16% of their cover.
At first glance, this may seem preferable to a 25% premium increase for the same cover, but it is not. The increase applies to a premium of R11 295 per year, whereas the reduction applies immediately and permanently to a
R1 million policy. The magnitude of the decision is fundamentally different. For this reason, I regard this as the second-worst option.
Option 2: The Age-Based Alternative
In my view, Option 2 is the best and most rational choice, even though it may initially appear the least attractive when looking at premium increases over time. Age-based premiums simply acknowledge a basic truth: the probability of a claim increases as we grow older. The premium therefore moves in line with the risk and is the only option that provides a reasonable degree of certainty regarding future premiums and cover.
A Few Final Thoughts
When you receive one of these letters, please understand that taking no action is almost certainly to your detriment. When purchasing life insurance, it should generally be done with a temporary objective in mind. Trying to maintain life insurance for the rest of your life is akin to holding a proverbial cash-flow revolver to your head.
There is no certainty regarding premiums beyond the original guarantee period (which is rarely longer than 10 years). If you eventually reach a point where you can no longer afford the premiums, decades of contributions can effectively be lost, leaving you with nothing.
If you are not having regular review meetings with a competent financial planner, there is a good chance that letters like these may slip through unnoticed. This could result in you unknowingly selecting the default option that will almost certainly work against your interests.
Andró Griessel is the Chief Executive Officer of Woodland Wealth. He can be contacted at andro@woodlandwealth.co.za.
Although all possible care has been taken in the preparation of this document, the factual correctness of the information contained herein cannot be guaranteed. This document does not constitute advice and anyone who intends to take any financial action based on this document is strongly advised to first consult with his/her personal financial advisor. Woodland Wealth is an authorized financial service provider with FSP no. 5966.