Life Insurance Guide | Insurance Help Product Information | Renewals

Once a policy has been issued, unless it is a single premium contract, a system will have to be set up to collect future premiums. Premiums can be paid yearly, half yearly, quarterly or monthly, and even weekly in some special cases.

There are a number of ways in which premiums can be collected. The most important are renewal notices, standing orders, direct debt, account collections and physical collection by an agent.

  • Renewal notices. This is the simplest method. A renewal notice is sent to the policyholder some two to three weeks before the due date, showing the premium due. The policyholder then returns part of the renewal notice with his remittance for the premium. Most offices use computerised systems to prepare and despatch renewal notices. Monthly premiums cannot normally be paid in this way.
  • Standing orders. The most common method of paying premiums used to be a standing order whereby the policyholder signs a form instructing his bank to pay the premium on each due date to the life office. This avoids the need for renewal notices and is particularly useful for monthly premiums. The bank will make the regular payments direct to the life office until instructed by the policyholder to stop.
  • Direct debits. The direct debit system is similar to a standing order. The premium payer authorises the life office to debit premiums directly from the bank account. All premiums are then debited automatically by regular exchange of tapes between the life office’s computer system and the bank’s computer system. The vast majority of monthly premiums are now paid by this method. Its advantage is the low cost and flexibility, which makes it ideal for variable premium contracts such as index-linked ones where the amounts of future premiums are not known at outset.
  • Account collection. Many offices have schemes whereby premiums are collected by a third party, often an employer, on an account basis. A typical instance would be where an employer arranges a life assurance scheme for its employees. Individual policies are issued by the life office to the employees, and the premiums are deducted each month by the employer from the employee’s salary. The employer then makes a payment to the life office consisting of the total premiums for all members of the scheme for that month.
  • Industrial policies. Under industrial policies, premiums are usually collected in cash by an employee, or agent, of the life office who has to complete the policyholder’s premium receipt book to show the premium as paid, and pay the premium on to the life office.