Retrenchment cover is vital in case you lose your job

Thuli Zungu Consumer Line
Credit ombud Nicky Lala-Mohan.
Credit ombud Nicky Lala-Mohan.

Thousands of employees are losing their jobs prematurely due to retrenchments while they have no plans on how to deal with their outstanding debts.

Those who have taken a retrenchment insurance or credit insurance could be exempted from paying some of their debts for six months while other debts could be written off. Unfortunately, others do not even know if they have a credit insurance or retrenchment cover.

Recently, the Consumer Line has been inundated with questions for advise from employees who have been retrenched and still have debts to pay.

Consumer Line sought advice from the credit ombuds, Nicky Lala-Mohan, who said when consumers lose their jobs they do not know how to ensure that they maintain a positive credit record while in the process of looking for work. Many consumers only take action when things go pear-shaped, said Lala-Mohan.

"If you have ever bought anything on credit, chances are you have also bought credit life insurance," he said.

He said credit life insurance is the insurance cover consumers take out in the event of death, disability, mental illness, unemployment or other insurable risk that is likely to impair their ability to earn an income or pay monthly instalment under a credit agreement.

"It sometimes happen that consumers with existing credit agreement are unaware that they have credit life insurance, which means that in the event of death, disability or retrenchment... there may be a claim," he said.

He said if these benefits are not claimed, the families of the consumers often take on the burden of paying off these debts when they could have claimed to avoid the burden.

In a case of retrenchment, consumers default and find themselves listed negatively at the credit bureaus when this is avoidable. Lala-Mohan said regulations were published two years ago setting out a price cap on how much credit providers could charge for credit insurance, as well as allowing for consumers to change their credit life insurance to the one of their choice.

He said consumers should assess what credit insurance they have, if any, and be aware what events are covered.

He said one of the cases his office dealt with was of a consumer who bought a car two years ago and the credit insurance was mandatory and accepted by the consumer. He said the consumer complained that he was overcharged on fees and interests. Upon investigation, the issue of credit interest arose in that it was disputed by the credit provider.

The service provider had contended that the insurance charges did not form part of the cost of credit as the insurance was supplied by the third party. "The result of our investigation was that the credit provider conceded that the insurance did qualify as credit insurance in terms of the National Credit Act.

"The maximum prescribed cost a credit provider may charge you in respect of a credit life insurance must be calculated on the deferred amount.

"Types of credit maximum prescribed cost:

Mortgate agreement: R2 per R1,000 owing;

Morgate agreement for affordable housing: R2 per R1,000 for consumers below 55 years and R2,50 for consumers over 55 years;

Unsecured personal loan: R4,50 per R1,000;

Short-term credit transactions: R4,50 per R,1,000;

Development credit agreements: R4,50 per R1,000; and

Vehicle credit agreement: R4,50 per R1,000."

He also gave the following tips:

Ensure your family is aware of your accounts as well as credit life insurance that you pay to ensure that they claim in the event you die or become disabled;

Do not buy any insurance product you do not fully understand;

If you already have enough insurance to cover the debt, give the new service provider proof at the time of entering into a new contract to avoid duplication; and

Read the fine print of any loan agreement to determine if credit life insurance is required and what it covers.

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