Your premium can be converted to an Automatic Premium Loan if not paid on time

Automatic Premium Loans were in arrears
Closely monitor all payments made against your insurance policies to avoid your premium being converted to a loan.
The insured purchased a life insurance policy in 1976 from an insurance company. He made arrangements with his bank to pay his premiums by means of a standing order. The insured went away from Trinidad and Tobago for an extended period.

In 2000, the insured became aware of an outstanding loan of approximately $20,000.00 against his policy. He claimed to have made attempts between 2001 and 2005 to get information from the insurance company about the loan but was unsuccessful.

In 2006, he was advised that an Automatic Premium Loan (APL) had been applied against his policy for the months in which the company had not received payments of premium, in accordance with the terms of the policy contract.

The insurance company also indicated that he was advised of the APL from as early as 1998, via correspondence mailed to the same address which had not changed from inception, starting with a loan balance of approximately $6,300.00. The complainant claimed that he did not receive any such letter and asked only to pay the loan balance as at 1998.

This request was denied by the insurance company on the basis that the insured had not reported any change of address at any time during his relationship with the insurance company. In fact, his address remained the same to date. Having sent the correspondence to his usual mailing address, they felt that they had satisfied their obligation. Additionally, they had no record of any attempt being made to query the outstanding accumulated loan amount, which increased as further premium loans and compound interest were added over time.

Lessons Learnt

Consumers need to monitor the payments made against their policies very closely as Automatic Premium loans are a feature of most life insurance policies.

In instances where a premium is not received by the insurance company, the outstanding premium will be treated automatically as a loan as long as there is sufficient cash value attached to the policy. This is to avoid the policy going into a lapsed state. Interest will be added to the loan on a compound basis and, over time, the loan balance could erode altogether the cash surrender value of the policy.