Johannesburg- 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.
This simply means that the amount you still owe on that debt or your installments payable will be covered by your credit life insurance in the event of such occurrences.
However, many people don’t realize that they have credit life insurance because the premiums are part of the loan repayment installments. Others confuse it with life cover and may assume they’re only covered in case of death.
Credit products such as credit cards, personal loans, vehicle finance, and home loans are typically coupled with credit life policies.
Nozizwe Fakude, the head of consumer insights at specialist loans provider DirectAxis, said some loan providers insist on credit life cover while others offer it as an option.
“If you’re concerned about your ability to continue meeting your repayment obligations should you lose your income, it’s worth checking what existing cover you may have,” said Fakude.
“You can confirm this by contacting the credit provider,” she added.
However, she cautioned not to assume credit life insurance automatically covers all debt.
“Credit life insurance isn’t a cure-all but can make an unforeseen and financially stressful situation easier to deal with.
“The important thing is to know whether you’re covered and what the terms and conditions are because then you’ll be able to make informed decisions.”
Financial services group Old Mutual gives the following tips:
Don’t pay more than you should.
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 “… 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 August 9, 2017.
Switch if it will save you money.
The 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.
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.
Last, 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 payments up to date.
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