Credit life insurance: 5 million do not know they even have it

According to the Financial Sector Conduct Authority (FSCA), about 26% of consumers participating in a survey were unaware that they had credit life insurance.

Often, consumers are so eager to complete a credit transaction that they do not look at, and read what they sign, says Caroline da Silva, divisional head of regulatory policy at the FSCA.

Credit life insurance covers your outstanding debt if you become unable to work or in case of your death. The retrenchment part of credit life insurance makes provision for covering your monthly credit payments for up to 12 months.

Research by the National Credit Regulator (NCR) also showed that only 20% of claims against credit life insurance are paid out compared to the number of premiums paid because people are unaware that they have it.

Exclusions

According to the regulations governing credit life insurance, credit providers can limit or exclude alcohol abuse, drug abuse, self-harm, suicide, active participation in war or war-related operations, civil war or civil unrest, participation in criminal activities, participation in dangerous conduct, such as bungee jumping and the use of nuclear, biological or chemical weapons as cause of death or disability.

Retrenchment cover can be excluded during the first three months of the credit agreement if the agreement will be for more than six months. Other exclusions can be losing your job as a result of misconduct or negligence, or when you retire, resign, participate in an unprotected strike, accept a voluntary package or volunteer to give up your income.

In the case of retrenchment that you knew about three months before the credit life insurance comes into operation, the cover can also be excluded or limited.

Existing conditions

Existing conditions can be excluded. Death or disability caused by an existing condition, that you were aware of twelve months before the cover comes into operation, can also be excluded if you are informed about it when applying for the credit life insurance.

Credit providers beware

Credit providers are not allowed to sell credit life insurance to people who are not permanently employed. You can only be charged R4,50 per R1 000 for credit life insurance on credit facilities, unsecured loans, developmental credit or other credit agreements. For home loans you cannot be expected to pay more than R2 per R1 000 of the insured amount.

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