Welcome back! Last week, we discussed two types of credit: Good vs Bad. If you missed last week’s article, feel free to review it by clicking here
. This week, we’ll be talking about Credit Life Insurance.
Definition of the week:
CREDIT LIFE INSURANCE
Credit Life Insurance is a type of insurance you pay on a loan. This insurance pays off your debt if you pass away or become permanently disabled.
Why take out Credit Life Insurance?
Life never turns out how we expect it. Without getting into the doom and gloom of it, every second has the potential to be our last. Death aside, we cannot take for granted that we won’t fall sick, become disabled, or even lose our jobs – we should all adopt the Scouts Association motto: “Be Prepared”.
We take out credit to make our lives easier. Credit gives us access to cars, houses, and other items we can’t easily afford. Credit Life Insurance insures that our debts are covered in instances of death or permanent disability. It protects us and our loved ones from the burden of not being able to pay off our debts.
What do I need to know about Credit Life Insurance?
What is the maximum premium allowed?
- Credit Life Insurance is different from other insurance in that it may be required when taking credit for the purposes of purchasing an asset, for example a house.
- A client who dies or becomes permanently disabled will have all outstanding debt settled.
- If a client loses their job, the cover must pay their instalments for up to six months.
- Unemployed people cannot be sold retrenchment cover.
- Providers can’t insist you take out cover from a particular insurer.
- There may be certain pre-existing conditions for which the policy won’t pay out.
- Credit Insurance is limited to R4.50 for each R1 000 owed (on all credit excluding mortgages).
- Ordinary mortgage agreements are limited to R2 for each R1 000 owed of the deferred amount.
Maria has just bought a bright red car for R150 000 for which she took a loan from her bank. Maria decided to use the insurance suggested by her bank. The insurer is allowed to charge R4.50 for each R1 000 owed. Therefore, the maximum Maria could be charged is:
However, providers are not allowed to simply charge the maximum premium allowed. They need to prove to the National Credit Regulator that the premiums cover “the actual risks and liabilities associated with the credit agreement
At the end of the day, when taking out credit, make sure you read the fine print. If there is something you don’t understand, ask the salesperson to explain it to you. Remember to never sign any document you don’t fully understand.
This is the last post in the series Knowing Credit: The Basics
. Our next series, Knowing Credit: Credit Applications
, focuses on the details of the credit application process. In the meanwhile, visit www.mycreditcheck.co.za
to get your free credit report.