How credit life cover works
A credit life policy is an insurance policy that pays out in the event of "an insurable risk" that is likely to impair your ability to earn an income or meet your repayments under a credit agreement, according to the National Credit Act.
Insurable risks include the risk of dying, being disabled, contracting a terminal illness or being retrenched.
Credit life cover may be compulsory, meaning that a credit provider is entitled to insist that you have this insurance in place for as long as you owe money to the credit provider.
This is so that the credit or loan will be paid should something happen to you.
While having cover may be compulsory, you cannot be compelled to buy credit life cover from the credit provider who provides the credit. You have the right to choose the insurer.
During a 2013 study into the credit life market, 35 undercover shopping exercises were conducted.
In only 21 of the 35 cases, were the shoppers told about the credit life component.
In other words, you may not always be informed of the fact that credit life cover is included in the cost of credit.
The study also found that only five out of 35 shoppers were told that they are allowed to substitute their own policy for the credit life offered by the credit provider.
Since we, as consumers, don't know our rights, we are vulnerable to abuses by the credit industry.
Credit life sold by credit providers used to be viciously expensive.
To put a stop to the excessive overcharging for credit life cover, government has introduced a cap on the cost of this type of insurance.
You can't be charged more than R4.50 for each R1000 owed on all credit agreements except home loans, in terms of regulations that came into effect in August last year.
Credit life does not always include retrenchment cover.
"At Capitec it does," Charl Nel, the bank's head of communications, says. However, there is a three-month waiting period.
In other words, you only enjoy cover for retrenchment from the fourth month.
One also ha s to take note that retrenchment cover does not apply when you take voluntary retrenchment.
Be warned that this type of cover is typically not available to you if you are older than 65 years.
You also need to understand that the pay-out typically decreases in correlation to the repayment.
In other words, it is a "decreasing sum assured cover".
If you stop paying your premiums, the cover will lapse and there is no cash component.
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