Credit Life Insurance: Your rights
08/08/2018 If you have a loan or a store card from one of the giant retailers, it is possible that you have been paying a premium for this type of insurance without even realising it!
Credit life insurance has, for the most part, flown under the radar when it comes to regulation. This was mostly because it was sold as a bundle product with other credit products. Many consumers didn’t know they had this insurance, and them or their families had to bear the brunt of paying old debts if, for instance, the breadwinner of the family died.
What is Credit Life Insurance?
Credit life insurance is put in place by companies that sell credit products as a way for them to be able to recover their money in the unfortunate event that you become temporarily or permanently disabled, critically ill, lose your job or you die. You pay premiums just as you would with normal insurance and should any of the above occur, the payments will be worked into your debt repayment, either to pay off your debt in full or to settle a portion of it.
Mis-selling of Credit Life
In the past few years, some well-known names in the retail industry have been taken to task by the National Consumer Tribunal for selling loss of employment credit cover to pensioners and self-employed consumers. Retrenchment for pensioners doesn’t quite sound right… does it?
Credit Life Insurance Regulations introduced
Before the new set of credit life regulations were drawn up and added to the National Credit Act (section 171) in 2017 by Minister of Trade and Industry Rob Davies, the Act did not prescribe any limitations on the cost, cover and benefits of credit life insurance.
The introduction of the regulations came as a much needed relief to consumers, putting an end to insurers exploiting them when they take out credit facilities.
According to the new credit life regulations, if you become disabled, ill or are retrenched, you should be covered for the shorter of 12 months, the remaining payment period or until you are no longer disabled, ill or unemployed.
So if you have 14 monthly payments remaining on your loan and you are retrenched, your loan repayments will be paid by the insurance until you find a job or for a maximum period of 12 months.
In the case of your death, all of your obligations relating to the credit agreement will be settled.
The sale of credit life
Unemployed consumers: If you are unemployed at the time of signing a credit life policy, no cost relating to the risk of unemployment or being unable to earn an income may be included in the cover cost.
Pensioners: A pensioners credit life cover should not include a cost relating to occupational disability or the risk of unemployment.
Self-employed individuals: This group includes those who are employed in the informal sector. If you are self-employed, the cover cost may include ‘the cost relating to the risk of being unable to earn an income other than as a result of retrenchment or occupational disability.’
Cost of credit life
For mortgage agreements exceeding R450 000, insurers can charge you a maximum of R2 per R1000 of the amount owing. This is the same for ‘affordable mortgage agreements’ (principal amount is less or equal to R450 000) for individuals below the age of 55. For those older than 55, R2,50 per R1000 will apply as the premium ceiling.
Credit facilities and all other credit agreements are subject to a maximum premium of R4,50 per R1000.
There are some exceptions which insurers are permitted to exclude from credit life. Some of the top exceptions include death resulting from the use of drugs, suicide, military obligations and unemployment or loss of income that results from lawful dismissal due to misconduct, participation in unprotected strike action and resignation.
Unfortunately, these regulations will only benefit those whose credit life policies were taken out after 10 August 2017, when the regulations came into effect.
It is even more important to be aware of what your cover entails. This way, you know what you are covered for and are able to plan properly should anything unfortunate happen to you.