Credit life cover – all you need to know

Having at least a little debt has become the norm for most people, and while you may feel that you’re in control of your debt, it’s important to ensure that you’re covered in the event that something goes wrong and leaves you unable to make your payments.

This is where credit life insurance has you covered. It is an insurance product designed to cover the cost of your debt if you aren’t able to pay it back due to disability, unemployment or death.

It covers you in the event of unemployment, disability or death

The amount you still owe or your instalments payable will be covered by your credit life insurance.

Perhaps because of the name (credit life insurance), many people think they would only be covered in the event of death. It’s important to know that if you’re a pensioner or self-employed, it’s against the law to sell you disability and unemployment cover.

You may already have credit life insurance

Considering that there are people who do not even know that this insurance exists, it’s no surprise that a lot of people don’t know that they might already have this cover and that the premiums are included in the cost of credit.

That’s why it’s so important to read any credit agreements before signing.

Most credit life insurance policies aren't actually underwritten, meaning your premiums aren’t calculated according to your individual risk, so if you have a pre-existing health condition, you might not be covered if you die as a result of that condition.

Don’t pay more than you should

The new regulations ensure that “... a monthly credit insurance limit of R4.50 for each R1 000 owed on all credit agreements except mortgages [was set]. Ordinary mortgage agreements have a R2 limit for each R1 000 owed.

Credit providers can insist you have credit life insurance

If you want to make use of an existing policy, you may be instructed to put the credit provider as a “loss payee” on the policy to ensure that they will receive part of the proceeds, up to the settlement value, in the event you are no longer able to pay off your debt.

You can decide who you take out credit life insurance with

Depending on the loan you take out and the credit provider you use, credit life insurance may be a prerequisite. However, that does not mean you’re obliged to get it at the same place you get your loan. A lender cannot force you to take out the credit life insurance product they propose.

Smith is the COO at Old Mutual Finance. This was first published on Old Mutual’s Finance blog