Having at least a little debt has become the norm for most people, and while you may feel that you’re in control of your debt, it’s important to ensure that you’re covered in the event that something goes wrong and leaves you unable to make your payments.
This is where credit life insurance has you covered. Credit life insurance is an insurance product specifically designed to cover the cost of your debt if you aren’t able to pay it back due to disability, unemployment or death. If you don’t want to burden your loved ones with repayment commitments that you’re unable to meet, credit life insurance can give you peace of mind.
As we mentioned before, credit life insurance is there to ensure that should something happen that leaves you unable to earn an income (such as retrenchment, unemployment, illness, disability or death), your family won’t be burdened with paying your debt. Instead, the amount you still owe on that debt or your instalments payable will be covered by your credit life insurance.
Perhaps because of the name (credit life insurance), many people think they’d only be covered in the event of death, but most policies will also provide cover in the event of disability and unemployment. It's important to know that if you’re a pensioner or self-employed, it’s against the law to sell you disability and unemployment cover.
Considering that there are many people who don’t even know that credit life insurance exists, it’s no surprise that a lot of people don’t know that they might already have this cover and that the premiums are included in the cost of credit. That’s why it’s so important to read any credit agreements carefully(from store cards to credit cards and vehicle finance) before signing them. If after reading a credit agreement carefully you’re still unsure about how you are protected, ask. It’s important to note that while it covers you for the reasons already outlined, credit life insurance lapses if the account is in default.
Most credit life insurance policies are not actually underwritten. What this means is that your premiums aren’t calculated according to your individual risk, so if you have a pre-existing health condition, you might not be covered if you die as a result of that condition.
The New Regulations limit the exclusions which may be included in a credit life policy.
When it comes to credit life insurance, it’s important to ensure that you aren't paying too much for your cover. Thankfully, the new regulations ensure that “...a monthly credit insurance limit of R4.50 for each R1,000 owed on all credit agreements except mortgages. Ordinary mortgage agreements have a R2 limit for each R1,000 owed. In practical terms, a mortgage agreement of R700,000 should carry a maximum monthly credit life insurance premium of R1,400”. These regulations apply to all loans taken out on or after 9 August 2017.
The New Regulations also state that, from August 2017, you have a right to substitute your credit life policy if another policy offers you a more favourable rate for the same benefits and protection. If you want to substitute your policy, it's important about new policy and complies with the minimum cover and limited exclusions which are listed in the New Regulations. The meagre savings to be made on a small, short-term loan may mean that a switch is not worth the effort, but getting a better rate on a large, long term loan can result in significant savings. If you speak to an advisor, he or she must disclose all fees and commissions related to your cover upfront. Lastly, you might also be relieved to know that while most premiums are fixed, they are charged monthly, and you do not pay interest on them as long as you keep your payments up to date.
According to the National Credit Act (NCA), credit providers can insist that you have credit life insurance for any credit agreement you have with them. If you want to make use of an existing policy, you may be instructed to put the credit provider as a “loss payee” on the policy to ensure that they’ll receive part of the proceeds, up to the settlement value, in the event you’re no longer able to pay off your debt.
As already mentioned, depending on the loan you take out and the credit provider you use, credit life insurance may be a prerequisite. However, that doesn’t mean that you’re obliged to get it at the same place you get your loan. A lender cannot force you to take out the credit life insurance product they propose. As we mentioned above, it’s up to you if you want to shop around to find the best option.