Insights & advice
“I was on premium offset but received a notification telling me I have to pay premiums out of pocket again”
If you’ve received a notification advising that you will have to start paying premiums out of pocket on your participating life insurance policy, we realise you may have questions.
To help you understand why this happened, and what your next steps should be, we’ve answered some of the most frequently asked questions.
Note: Premium offset can also be known as Premium Vacation™ and the abbreviated premium payment option (APPO).
Why did I get this notification?
How long your policy can stay on premium offset depends on your policy's values. We can’t guarantee how long any policy will stay on (support) premium offset. If your policy no longer supports premium offset and premium payments are still required, you must pay premiums out of pocket again.
Possible reasons include:
- Changes to the dividend scale lowered your policy’s dividends so they aren’t enough to cover your premium payments.
- Changes you’ve made to your policy (withdrawing cash value or transferring ownership, for example) affected your policy’s ability to support premium offset.
What should I do now?
You can pay your premium out-of-pocket now and restart premium offset when your policy’s values support it again.
What happens if I don’t start paying my premiums out of pocket again?
If you don’t pay your premium, we’ll automatically take out a premium loan, with interest, against your policy’s cash values, if sufficient to pay your premium. If this loan and its accumulated interest later exceed the cash value of your policy at any time, your policy will end. Get in touch with your advisor to explore all the options available to you.
Can I change the type of premium offset I’m on?
If you’re on full premium offset, you may be able to change to variable or level premium offset and pay only a portion of your premium from dividends.
If you’re on variable or level premium offset, you may be able to decrease the amount of
premium to be covered by dividends.
You’ll need to talk to your advisor to do this. If you don’t have an advisor, our Client Service Centre will put you in touch with someone.
I have the enhanced coverage dividend option. What can I do?
Your advisor can walk you through this decision, but you may be able to:
- Reduce the amount of your term life insurance coverage, which reduces how much of your dividend goes to pay for term coverage.
- Change to the paid-up additional coverage dividend option, which uses dividends you’ve received to buy additional life insurance coverage. This removes the term life insurance coverage costs your dividend pays for and will also lower your overall insurance payout.
Are there any other options?
Speak to your advisor, but there are some other options that may be available to you. You may be able to decrease your base coverage to lower your premium payments, but you may have to pay taxes.
You can request to change your policy to reduced paid-up. You won’t make any more base premium payments but you lower your insurance payout (death benefit). If you do this too soon after buying your coverage, your policy could lose its tax-exempt status, which may mean you’ll pay tax on the policy's growth every year after.
When can I restart premium offset?
This is specific to your policy and will depend on future dividends, which aren’t guaranteed. For details, please contact your advisor. If you don’t have an advisor, please contact our Client Service Centre and they’ll put you in touch with someone who can help.
How are premium payments made using premium offset?
When you bought your policy, you signed a contract, which showed premium payments must be made for a specified amount of time. You still pay those premiums when you’re on premium offset but use dividend- values from your policy to cover those costs instead of paying them out-of-pocket. How long you must pay premiums out-of-pocket again depends on:
- The type of participating life insurance policy you have
- Any changes you make to your policy
- Dividend scale changes
My dividend is more than my policy’s premium this year, so why doesn’t my policy support premium offset anymore?
If you have the enhanced coverage dividend option as well as premium offset, your dividend pays for one-year term insurance first, before paying your policy’s premium, and there may not be enough left to pay your premium.
If you have a former Prudential policy (with a policy number that starts with 09F) or a Great-West Life policy issued before 2012, your current policyowner dividend and illustrated future dividends must be high enough to cover current and future premiums, based on the dividend scale at that time.
Who can I talk to if I have more questions?
Check out our more general premium offset FAQ, or speak to your advisor. If you don’t have one, get in touch and we can help.