Credit life insurance, which covers your debts in the event of your death, disability or retrenchment, provides a valuable safety net to protect you and your loved ones from becoming saddled with your debt should the unthinkable happen.
Besides the death benefit, credit life insurance will also pay the total remaining balance of the loan in the event of permanent disability, or it pays monthly loan Instalments in the event of temporary disability or retrenchment the number of months covered varies from provider to provider. It is really meant to protect you and your loved ones from the enormous strain of having to settle debt when life circumstances may place you in a position where you simply are unable to.
Tlalane Ntuli, co-founder and Chief Operating Officer of Yalu, a fintech company that offers credit life insurance, highlights a number of important benefits of having credit life insurance:
- Prevent your loved ones from financial hardship - The policy is designed to settle your loan repayment obligations directly with the bank, and ensure that should you pass away, your remaining estate which you leave to your beneficiaries is not depleted by having to pay off credit providers first. There is therefore no pay out directly to your beneficiaries
- Protect you from having to pay your loan if you become disabled or retrenched - A serious accident or health condition could leave you disabled and unable to work and earn an income, while retrenchment could leave you out of work for months on end in an incredibly tough economic environment. Imagine the enormous strain of having to service your debts despite not having the financial income to do so? Credit life insurance pays your outstanding loans if you become disabled or retrenched usually for a set period of time depending on the provider unless if you are permanently disabled in which case it settles the loan.
- It helps safeguard your credit record – in a situation where you become disabled or retrenched and unable to service your immediate loan repayments, a credit life insurance policy will service the loan on your behalf, thus ensuring that you don’t default on your debt and destroy your credit record. Your credit record is a compilation of information about the way you handle your credit and debt accounts, how you pay your bills, whether you have defaulted on any debt repayments, or have any judgements against you. Your credit report affects many parts of your life, so it's important that it remains positive so that you can access credit in future and at lower interest rates by having a good credit profile.
- Peace of mind through standardised benefits – new regulations which came in Aug 2017 mean that minimum and standardised benefits apply which makes it so much easier to know exactly what you are covered for. For example, credit life insurance cover must provide for the settlement of your total loan repayment obligation in the event of your death or permanent disability. Even if your disability is temporary, the cover must pay your obligations under the loan agreement that become payable for 12 months, or the remaining repayment period or until you are no longer disabled, whichever period is shorter. In terms of retrenchment, your obligations under the agreement become payable for 12 months, or remaining repayment period, or until you find new employment, whichever period is shorter.
- You can switch at any time – if you have an existing loan predating Aug 2017, you may have credit life insurance that costs more than the regulated capped rate of R4,50 per R1000 loaned - which means you are unnecessarily paying more than the prescribed amount. The good news is that you don’t have to have credit life cover with your loan provider, and you’re free to switch to any insurer with better rates and benefits and the credit provider must accept such substitution. This is made possible through the new Credit Life Insurance Regulations which mandated the standardisation of benefit definitions and exclusions across all credit life insurance policies, so current credit providers can no longer refuse to accept alternative credit life policies on the basis of the benefits and definitions being different to their own.
“Make sure that when you do decide to purchase credit life insurance, that you do so through a reputable and accessible insurer, that you have a policy document that clearly details what you cover is all about, that you know how to claim and that you keep your policy documentation in a safe place. It may sound obvious, but many people neglect to share such important policies and documents with their spouses and families. Remember your cover is only able to protect your loved ones if they know you have it in the first place and how to claim when in need,” concludes Tlalane.
Issue date: August 2018
