Wednesday | 08 April | 2020
Solidarity Research Institute
This article does not provide financial advice – contact your insurer or credit provider for any questions.
So many things in life are uncertain. In addition, we are living in a time when the level of uncertainty is totally unprecedented owing to Covid-19. There is no guarantee that you will still have a job tomorrow. Neither do you know if you will still be able to work next month. In the midst of all this uncertainty you may be sure that any debt you incurred in the past isn’t going to disappear just like that.
Much has been said and written on the economic implications Covid-19 is having and will be having. Since the beginning of the lockdown, many companies are unable to pay their employees’ salaries, and it is predicted that millions of people are going to lose their jobs in the near future.
The government has announced plans to mitigate the economic impact of this virus, and many banks have put measures in place to ease the burden on clients during this period.
In a recent video on Twitter the personal finance journalist Maya Fisher-French Maya Fischer-French reminded South Africans of the possibility of credit life insurance cover – an insurance product few consumers are aware of.
This article is aimed at answering your questions on credit life insurance in the time of Covid-19.
What is credit life insurance?
Credit life insurance, also known as a credit life insurance policy, is a policy that partially or fully covers one’s debt in the event of death, disability, retrenchment (in some cases) or any other insurable risks that are likely to make it impossible for a consumer to earn an income.
This insurance product covers any form of debt, such as debt on credit cards, overdraft facilities and study, car, personal and home loans.
What does the National Credit Act say?
In terms of the National Credit Act of 2005 (“the Act”), a credit provider may require a consumer to take out credit life insurance when entering into a credit agreement with that provider for the term during which the debt has not been paid yet. The Act does provide that a consumer may use an existing life insurance policy to insure the debt instead of taking out credit life insurance. In the latter case, the credit provider may insist on being joined as a beneficiary on the life insurance policy with a view to receiving part of the return when the life policy pays out, up to the settlement value of the debt at that stage.
In 2017 the Final Credit Life Insurance Regulations published following a commission of inquiry into this matter. These regulations cover, inter alia, the conditions for payment of a credit life insurance policy as well as the maximum premium consumers may be charged.
In terms of the regulations, a credit life insurance policy may cover instalments on the insured debt for up to 12 months if the consumer has been declared temporarily disabled. The regulations also provide that in the event of a consumer becoming unemployed for a reason other than disability and not earning an income, the policy may also cover the instalments payable on the insured debt for up to 12 months.
In some cases, insurers may refuse payment in terms of the exclusions stated in the amended regulations.
What is the difference between life insurance and credit life insurance?
|Credit life insurance
|What is covered?
|If a consumer is unable to repay loans owing to death, disability or retrenchment, a credit life insurance policy will pay the debt to credit providers either partly or fully.
||Life insurance policies pay an amount agreed upon to beneficiaries on the death of the policy holder. The aim of such a payment is not to settle debt but to ensure enough funds are available for the next-of-kin of the policy holder. While most life insurance products pay out only on the death of the policy holder, some insurers sometimes also offer other benefits, such as disability cover and critical illness cover.
|What amount will be paid out?
|Payment of the policy is limited to the value of the outstanding loan, and the amount is paid directly to the credit provider. The consumer may not be covered for more than the value of his/her debt.
||Life insurance is a custom-determined amount according to the needs of the policy holder’s beneficiaries.
How do I get credit life insurance?
As has been mentioned, credit providers may require the consumer to have some form of insurance for his/her debt – be it life insurance or credit life insurance. A consumer may not even be aware of the credit life insurance he/she has because the premium may be included in the instalment he/she pays on the debt every month. For this reason it is very important to carefully read any credit agreement before it is signed.
Some credit providers give automatic credit life insurance on some of their products. In such a case, the consumer does not have the option of using his/her own life insurance because some products, such as personal loans, are considered to be a higher risk than home loans, for example.
It also is important to note that credit life insurance lapses when the full amount of the debt has been settled by the consumer.
How do I find out whether I have a credit life insurance policy?
As mentioned above, it is very important to carefully read again the credit agreement(s) you have signed if you have access to them.
If these agreements are not in your possession, you should immediately contact your credit provider or insurer to find out (1) whether you indeed have a credit life insurance policy, and (2) exactly what are the terms and conditions of these agreements.
Are all credit life insurance products the same?
No, there is no standardised, uniform approach to credit life insurance products. Although the Act contains some requirements that credit life insurance products have to comply with, the extent of credit life insurance products is calculated on the basis of every consumer’s profile. In addition, every credit life insurance product (from the same insurer or different insurers) is unique in the cover and exclusions it offers, so it is important for the consumer to carefully study his/her credit life insurance agreement and to contact his/her insurer.
Will my credit life insurance policy pay out if I only temporarily lose my income (e.g. during the lockdown period)?
Again it is important to look at the terms and conditions of your own credit life insurance policy. Some credit life insurance products pay out only if the consumer has lost his/her entire income but do not cover partial loss of income.
For example, if you have lost part of your income for March 2020 and another part of your income for April 2020 (during the lockdown period), your insurer will reject your claim if the insurer does not cover partial loss of income.
When will my credit life insurance policy not pay out?
As has been mentioned, insurers may in some instances refuse to pay out the full claim or they may decide to pay only part of a claim. These instances are as follows:
- If the consumer dies as a result of the following:
- Abusing alcohol or drugs.
- Wilful self-inflicted injury or suicide by the consumer.
- Active participation in war, invasion, hostile actions and uprisings.
- The use of nuclear, biological or chemical weapons, or any radioactive contamination.
- Participation in criminal activities.
- Participation in hazardous activities such as mountain climbing, bungee jumping and speed racing.
- Any pre-existing condition the consumer was aware of in the 12 months preceding the signing of the credit life insurance policy.
- If the consumer has lost his/her job or is unable to earn an income resulting from the following:
- Retrenchment or termination of employment within the first three months after the commencement of the credit life insurance policy, where the term of the credit agreement is more than six months.
- Lawful dismissal by an employer.
- Voluntary forfeiture of salary, wages or other employment income.
- Voluntary retrenchment or termination of employment.
- Participation in an unprotected strike.
- Retrenchment which the consumer was aware or received notice of during three months preceding the date on which the credit life insurance policy was signed.
How do I submit a credit life insurance claim?
In the case of retrenchment or disability, the consumer may submit the claim to his/her insurer. In the case of death, the credit provider submits the claim to the insurer on behalf of the client.
Will I have a bad credit record if my credit life insurance policy is paid out?
If your credit life insurance policy is paid out, it will not be reported to any bureau or system, unless you have missed an instalment. For this reason it is extremely important for consumers to immediately contact their insurers or credit providers to submit a claim. Remember, insurers and credit providers currently are inundated with enquiries and claims, so processing your claim could take some time. If you wait too long, you could miss an instalment, which may badly reflect on your credit record.
What is the difference between credit life insurance and other supplementary credit insurance products?
Some credit providers offer their clients the option of taking out supplementary credit insurance products. These products vary from institution to institution but could offer additional insurance on your credit card, overdraft facility or home, car or personal loan, for example. These products are entirely voluntary and supplementary to the credit life insurance or life insurance you already have.
If you have supplementary credit insurance, you should without delay contact your credit provider or insurer to find out what the terms and conditions of those agreements are.
I have been retrenched/declared disabled temporarily but my credit provider/insurer has rejected my claim to settle my debt because I am not covered for this purpose, so how can I now settle my debt?
The best you can do in such a situation is to contact your credit provider as soon as possible, explain your situation and make an arrangement.
* All information was correct at the time of publication.