Negociate Credit Solutions - Author Lauren Heekes
Let’s face it. Most of us have some form of debt. Whether credit cards, loans, vehicles or homes. We often forget that in the event of an unforeseen circumstance and without insurance cover, our family will be left with the responsibility of paying this debt back.
This is where Credit Life Insurance has you covered. Credit Life Insurance is there to ensure that, should something happen that leaves you unable to earn an income, your family won’t be burdened with having to repay your debt. Unforeseen circumstances include retrenchment, unemployment, illness, disability or death.
However, claims on Credit Life Insurance policies are significantly low, which suggests that few people are aware that they have Credit Life Insurance and that they can make a claim against this insurance cover.
Due to non-disclosure by Credit Providers, many families of consumers never claim against the Credit Life cover taken out at the time of entering into the Credit Agreement. These families take on the burden of paying off this debt, or they simply default on the Credit Agreement and are locked into an unnecessary debt collection cycle.
Many consumers think they will only be covered in the event of death, but most policies will also provide cover in the event of disability and unemployment. It's important to know that if you’re a pensioner or self-employed, you cannot claim against the unemployment cover.
In South Africa, there has been widespread abuse of this Insurance. Illegally selling this insurance to pensioners and the self-employed. Overcharging also occurred due to the fact that for many years there were no regulations in place for what could be charged.
Thankfully this has changed with the Publication of Regulations in this industry. Some Credit Providers have received hefty fines which has stopped this type of abuse from perpetuating.
So... Do I have Credit Life Insurance?
Probably.
What do you mean?
There are many consumers who don’t even know that they have Credit Life Insurance and aren’t aware that the premiums are included in the Cost of Credit. That is why it’s so important to read the contract carefully before signing a Credit Agreement. We know that the fine print on a contract is enough to send any sane person to the loony bin, but make sure that you are covered and also know what you are covered for. Find out if there are clauses that you should be aware of. i.e. What happens if you miss a payment?
If you are still uncertain of the terms and conditions after reading a Credit Agreement, ask the consultant to explain it to you. Please note that while Credit Life Insurance covers you for the reasons already outlined below, it lapses if the account is in default.
What should I be charged for Credit Life Insurance?
Make sure that you are not being overcharged. New regulations ensure that there is a limit per R1,000.00 owed on all Credit Agreements, except for Home Loans. Home Loan insurance limits differ, and are usually lower, because there are hundreds of thousands of rands involved in this type of transaction. You can go the National Credit Regulator’s website www.ncr.org.za to find out what you should be charged per R1,000.00 of your debt. It will be broken down into different categories for credit facilities, unsecured and secured debt.
Do I have to stick with the Credit Provider's Insurer?
The New Regulations state that you have a right to shop around for better premiums. If you do decide to shop around, make sure that the new policy complies with the minimum cover as listed in the New Regulations and with what the Credit Provider is currently offering.
Savings on small, short-term debt may not warrant the switch, however, getting a better premium on large, long term debt can result in massive savings. If you speak to a consultant he or she must disclose upfront all fees and commissions related to your cover.
Does this Insurance cover affect my Interest Charges?
The answer is NO. Interest on debt is calculated on the outstanding debt owed and does not include the insurance premium. It might however extend the term of your debt. Why?
If your installment is R1,000.00 and your Credit Life insurance is R200.00 then you are only paying R800.00 towards the outstanding debt. Obviously paying R1,000.00 towards outstanding debt (if Credit Life Insurance wasn’t applicable) results in debt settling sooner. Similarly paying less for Credit Life Insurance means that you are paying more towards debt and therefore it makes sense to shop around for better premiums.
Can I refuse the Credit Life Insurance?
Interesting question. In terms of the National Credit Act (NCA), Credit Life Insurance is mandatory, and therefore a Credit Provider can insist that you have a Credit Life insurance Policy for the duration of a Credit Agreement.
1. The Credit Provider may offer you this insurance, but you have the right to obtain cover elsewhere.
2. A Credit Provider cannot insist that you buy cover from a particular Insurer. Consumers are not always properly informed of this when they apply for credit or when credit is granted. Some Credit Providers may have an incentive in place with an Insurer and so refrain from informing the consumer of their options.
Am I covered for Pre-existing Conditions?
No. The policy may exclude cover for pre-existing conditions. If you have health concerns, find out if the policy will pay out in the event of death due to a specific condition. Credit Life Insurance cover does not calculate premiums based on your individual risk. However, in the event of disability or death due to a pre-existing condition, the Insurer will not pay out the cover. Make sure that you are fully aware of what the insurance covers.
Am I covered if I am Self-employed or a Pensioner?
Credit life Insurance Benefits include retrenchment and disability or life cover. Insurers are not allowed to offer retrenchment policies as stand-alone products. This means that if you are self-employed or a pensioner, you may be sold a product that comes at a cost as you will NOT be entitled to the retrenchment cover. Make sure that you know your rights where this is concerned.
Investigations into consumer Credit Life Insurance found that there were a number of issues that required intervention, e.g. the cost of credit was not properly disclosed and Credit Life Cover did not meet the needs of specific consumers. For example, selling retrenchment and disability cover benefits to pensioners and self-employed consumers. Benefits that they will be unable to claim for.
Lewis Group refunded a total of R67.1 million to pensioners and self-employed customers for incorrectly selling them unemployment insurance.
So what am I actually covered for?
Credit life insurance is taken out in the event of a death, disability, terminal illness, unemployment, or other insurable risk that is likely to impair the consumer’s ability to earn an income or pay their monthly instalments under a Credit Agreement. In order to put in a claim make sure that you have the necessary documentation that the insurer requires i.e. death certificate, retrenchment letter, medical and disability certificate etc otherwise your claim will be rejected.
Some Credit Providers sell funeral cover as a form of Credit Life Insurance for smaller loans, however this does not provide cover for disability or retrenchment.
How much will I be covered for?
A policy cannot cover you for more than the total credit granted. Some Credit Providers will reduce the Credit Life Insurance as the debt reduces over time, but they cannot charge more than what was originally owed. They are also not obliged to reduce the premium as the debt reduces. The premium can be fixed for the duration of the Credit Agreement.
Full disclosure at the Inception of your Credit Agreement
You are entitled to full disclosure of all costs called “Total Cost of Credit”. Total cost of Credit includes but is not limited to the initiation fees, administrative fees, interest charges and Credit Life cover. Regardless of this requirement, many consumers still don’t know that they have Credit Life Insurance, what it is costing them, or what the insurance will cover. They are also not informed that the insurance lapses if they miss a payment.
In Summary
Ensure that your family are aware of your accounts as well as the Credit Life Insurance. This will ensure that in the event of your death or disability, a claim can be submitted to the Insurer.
Do not purchase any insurance product that you do not fully understand.
Make sure that you ask about exclusions for pre-existing conditions. Remember that you are not covered by the employment benefits if you are a pensioner or self-employed.
A Credit Provider is obliged to tell you that it is not mandatory to take out Credit Life Insurance sold by the Credit Provider and you can shop around for your own Credit Life Insurance as long as it matches the current policy benefits.
If you buy Credit Life insurance when you sign a Credit Agreement, the Credit Provider must disclose all commissions and fees to you upfront.
A copy of the Credit Life Insurance Policy, which sets out the benefits offered, should always be provided to you.
It is important to note that the Credit Insurance cover will no longer be in force if the account is in default i.e. if you miss a payment.
Make sure that you are aware of the documentation required when submitting a claim otherwise the claim will be rejected. E.g. Death Certificate, Retrenchment Letter, Medical and Disability Certificate.
We have now found ourselves in interesting times, where the above might have been useful had we known upfront how Credit Life Insurance works.
Those who always prepare for the best are never surprised when they are presented with the worst. The Best preparation requires a thought process which includes the possibility that things just might not work out the way we hoped they would.
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About the Author
Lauren is currently a registered member of the National Credit Regulator. Prior to that, she worked as a Financial and Technical consultant for McGregor-BFA (Now INET-BFA). McGregor-BFA provided Trading and Market related data as well as Investment management software to various Asset Managers, University Business Schools and Investment entities. Thereafter experience was advanced to the Property Market working as a Project Manager for Propertyi. But it was actually her career at the IEB in Adult Education that inspired a passion of hers to educate consumers about responsible ways of managing their financial lives and the long term advantages of doing so. It is her belief that financial education should be taught from an early age. By doing so we can create a country that is truly economically stable, not only driven by work ethics, but by becoming Financially Independent too.
Negociate Credit Solutions - Your Money Better Terms
www.negociate.co.za / Contact: +27 (861) 555 554
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