Beware credit life policies

● Retrenchment benefit not appropriate for self-employed people and contract workers

If you are self-employed or a contract worker and have been sold a credit life policy or a credit protection plan which includes retrenchment, this represents mis-selling, the ombud for financial advice says.

Financial services providers (FSPs) and their representatives are required by law to obtain all relevant and available information from you to ensure that any recommendation made by them is appropriate to your needs and circumstances.

Naresh Tulsie, the ombud for financial services providers, says an FSP would be required to have knowledge of the nature of your employment.

Such information would have been disclosed during the credit application, and therefore the provision of a retrenchment benefit to a self-employed person or contract worker would be inappropriate and a matter for investigation.

The ombud, also known as the FAIS ombud, says his office has received numerous complaints where claims in respect of retrenchment have not been honoured in this regard.

When you take out a credit life policy and a credit protection plan you are not subject to medical underwriting, so all applications are accepted, irrespective of risk to the insurer.

This is important to understand, the ombud says, because with these products the risk is managed by various exclusionary clauses, which deny you cover if you have any pre-existing medical condition diagnosed or for which you received treatment previously.

“This type of exclusion also differs between insurers, with some applying the exclusion as a general exclusion for the term of the policy – normally the duration of the finance agreement – and others applying the exclusion during the initial 24 months of the policy.”

But this does not mean that FSPs and their representatives can get away with selling you policies without disclosing any exclusions and instances when cover will not be provided.

This is because you must be able to make an informed decision when you buy a financial product, and the product must be appropriate for your needs and circumstances.

The FAIS ombud’s handling of a case involving a consumer whose credit protection policy failed him highlights these obligations on the provider.

The consumer had taken out a credit protection policy after having bought a car, to provide cover in the event of him being unable to make the monthly payments as a result of death, permanent disability or retrenchment.

After suffering a stroke, the consumer was rendered disabled. His claim was rejected because the cause of the disability was directly linked to a condition diagnosed before he took out the policy.

It was then that he discovered that the policy had a 24month waiting period. He also was not aware of the exclusion of any pre-existing condition which applied to his policy.

On receipt of the complaint, the ombud took the credit provider to task, and the decision was revised with the claim settled in full and the outstanding R115,240 on the vehicle paid.

If you believe you have been financially prejudiced, contact the FAIS ombud on 012-7625000 or 012-470-9080 or e-mail info@faisombud.co.za