Credit life insurance can cover your debt repayments for up to 12 months if you get retrenched, become critically ill, temporarily or permanently disabled, or pass away — You don’t have to face life’s difficult times alone.
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The great part is that a credit life insurance policy does not require you to do any medical examinations.
If you’re injured on the job and can no longer work, or if you’re retrenched, your cover will kick in and pay your debt instalments until you start working again.
Insurance will also ensure your debts don’t place a burden on your estate and dependents if you pass away.
Policies will differ from one lender to the next but can cover your full debt in the event that you pass away or are permanently disabled or about 12 months’ worth of instalments if you become temporarily disabled or are retrenched.
Sometimes instalments will extend past this 12 month period if you have not started working yet.
A lender can force you to take out insurance because it is compulsory for certain types of loans and the National Credit Act allows for this.
If you have a credit card with your bank you will notice that part of your monthly instalment is for insurance cover. This amount will go up or down depending on the outstanding amount that you owe the bank. This insurance will pay off your outstanding balance on your credit card should you pass away or not be able to work and, therefore, not be able to pay your monthly instalment.
Credit life insurance will ensure your family or estate is not burdened by debts that you leave behind if you pass away and could also cover your debt instalments if you become temporarily or permanently disabled or are retrenched (in some cases).
While it’s true that credit life cover protects your lender more than it protects you, it is certainly worth it and will help safeguard your family from having to deal with large amounts of debt when you’re no longer around.
It is important to contact, for example, your car loan provider or your bank, if you have a credit card, home loan or personal loan, to find out if you are already paying for cover as part of your monthly instalments or if you should consider these debt amounts in your financial planning. If these amounts will already be paid off by the cover your loan providers have in place then there is no need to add it to your calculations. Be sure to make notes of these facts for any family member who may be dealing with your estate.
Credit life cover will either be automatically included in your loan instalment or you will need to take out cover on your own.
If you pass away, are disabled, or lose your job your debt will either be paid in full or your instalments kept up until you’re back on your feet.
The three types of credit insurance include death, temporary and permanent disability, and unemployment.
Always check which of the three types, or what combination, your credit insurance policy covers, and feel free to make adjustments if needed.
Your life insurance premiums will gradually decrease as you pay off your debt because the face value of the policy is linked to the debt.
Credit life insurance isn’t generally underwritten so you will not have to undergo any medical exams or blood tests to secure cover.
It will cover only a specific debt if you pass away or the debt instalments if you become temporarily or permanently disabled but life cover will pay out the life insurance amount in a lump sum, which can then be used for anything from debts to paying for your children’s education.
Life cover will generally only pay out when you pass away or are diagnosed with a terminal illness, it will not cover instalments if you become disabled or are retrenched.
In addition, if your life cover lump sum payout is used to settle your debts, your family may not have enough for all the other expenses.
Finally, keep in mind that the beneficiary of your policy is not obligated to settle the debts of the deceased with the lump sum payout.
Many financial services providers will add credit insurance to your loan automatically so it’s important to review your loan agreement to find out. The credit insurance will simply be added to your monthly loan instalments rather than deducted separately.
While different providers may vary the cost of their credit insurance and this changes depending on the type of loan and loan amount, credit insurance is capped by legislation.
A provider may not charge you more than R2 per R1,000 and R4,50 per R1,000 for other types of credit such as car and personal loans.
It is not expensive because lenders are not able to charge you more than what legislation allows (this type of insurance is capped).
If your credit insurance was purchased before August of 2017, you may be paying more than the maximum amount set by legislation, in which case you should ask for your premiums to be reduced or look for another provider.
You are not obligated to take up credit insurance with the financial services provider that extends credit to you.
You can shop around for cover and choose the option that best suits you but you will need to notify your lender ahead of time. This does not apply to loans that come with automatic credit insurance.
You can either take out credit life insurance with your credit provider or search for an insurer that offers this as a standalone product.
Unlike life insurance, credit insurance isn’t underwritten which means that even if you’ve been diagnosed with a chronic illness, you can still secure cover.