CONSUMERS SOMETIMES MISLED TO BELIEVE THEIR LOAN WON’T BE GRANTED IF THEY DON’T BUY A POLICY SOLD BY THE BANK
You can buy two types of cover linked to a loan
Life assurance linked to an unsecured loan sold by a bank may or may not be cheaper than a policy you can buy elsewhere.
It depends on whether the policy is sold on what is loosely called a group scheme basis, where everyone is assumed to be more or less equal and pays the same premium, or on an individually risk-rated (or underwritten) basis, where the premiums are adjusted according to your personal circumstances.
If you are individually risk-rated, factors such as your age, gender, health, education, job, hobbies and whether or not you smoke are taken into account.
For example, you will pay a very low premium for an individually risk-rated policy if you are a 25-year-old healthy, nonsmoking woman who works as a chartered accountant, but if you are a 60-year-old man who smokes and who works as a semiskilled labourer in a mine, you may find that a group scheme policy will be cheaper.
In other words, the more likely it is that you will meet an early demise, or suffer from a disease or have an accident that could undermine your ability to earn a living, the more you, as an individual, will pay for life cover.
There is very little crosssubsidisation between high-risk and low-risk individuals with an individually risk-rated policy. But with a group scheme policy, such as a credit life assurance product, there is extensive crosssubsidisation, because it is virtually assumed that everyone is at the same level of risk. The effect is that the young, educated and healthy subsidise the old, less educated and unhealthy.
In most cases, you will be required to undergo a thorough medical check-up before you will be issued with an individually riskrated policy. Your premium, and even whether or not you will be granted life assurance, will depend on the results of the check-up.
It is likely that you will be asked some questions about your health when you apply for group cover. For example, you may be asked if you currently suffer or have recently suffered from a severe disease. If you do or you did, you may be denied life assurance.
You may also be required to undergo an HIV test, which will determine whether or not you qualify for a policy.