The importance of understanding your insurance policy and premiums...

The Insurance and Finance Services Ombudsman has dismissed a couple’s complaint around increased insurance premiums after finding that the change in premium was agreed to by the couple.

A husband and wife made the complaint regarding a significant increase in their life insurance premium after the husband’s 80^th birthday. They claimed they were not informed by their insurance advisor at the time of choosing their policy that the premium would increase after age 80, and sought a refund of the extra amount they paid for their premium.

The couple claimed that when they had signed up to their insurance plan, they had received an assurance from a financial advisor that their premium would not change. When the IFSO investigated this claim they could not find evidence to suggest that this assurance was ever given.

The IFSO also found that the couple had chosen to enter into a policy with a “Level to Age 80” premium. Under this type of policy, the couple were to be charged a certain price up until the age of 80, after which the type of premium would automatically change to a “Rate for Age” premium.  This insurance contract enabled the insurer to amend and increase the premium amount without notice every year, based on the age of the client.

There are three main policy types relevant here, “rate for age”, “stepped cover” and “level cover”.

Rate for age premiums can be calculated annually and tend to increase as one’s age increases.

Level cover has premiums that do not increase annually, and there is more transparency with the cost of the premium.

Stepped cover is cheaper than level cover to begin with, but as you age there is more risk associated with claiming on your policy, and therefore the premiums can become more expensive as you age.

The details regarding this change in premium after age 80 were explicitly stated in the insurance agreement, which the couple had signed.

This led to the IFSO concluding that the couple had knowledge of the details of the premium in the policy they entered into, and rejected their application.

Knowing the terms and conditions of your policy, and in particular what premium calculation basis you sign onto, is extremely important. If there is confusion around your entitlements and obligations under an insurance policy, it is wise to seek advice from a professional in the area.