New credit life rules to ap­ply from Au­gust

New reg­u­la­tions that will pro­vide con­sumers who buy credit life in­sur­ance with more pro­tec­tion come into ef­fect in Au­gust, but the leg­is­la­tion will not ap­ply ret­ro­spec­tively. re­ports

Weekend Argus (Saturday Edition) - - FRONT PAGE -

We are just two months away from the im­ple­men­ta­tion of new credit life in­sur­ance reg­u­la­tions that are aimed at pro­tect­ing your rights, as a con­sumer, but are you in a po­si­tion to take ad­van­tage of them?

The Na­tional Credit Reg­u­la­tor says con­sumer credit reached R1.6 tril­lion at the end March, so it’s clear that the new reg­u­la­tions will af­fect mil­lions of South Africans.

The fi­nal credit life in­sur­ance reg­u­la­tions were pub­lished in the Gov­ern­ment Gazette on Fe­bru­ary 10 and are sched­uled to come into force in Au­gust. Only credit agree­ments con­cluded on or af­ter the com­mence­ment date will be af­fected by the new reg­u­la­tions.

From Au­gust, the max­i­mum amount that com­pa­nies can charge con­sumers for credit life cover will be R4.50 a month on each R1 000 bor­rowed. For ex­am­ple, if you open a R10 000 fur­ni­ture ac­count, you can be charged a max­i­mum of R45 a month for cover, but the limit will ap­ply only to new ac­counts.

Sasha Knott, the chief ex­ec­u­tive of credit life in­sur­ance com­pany Switch2, says that, when they take on credit, too few con­sumers re­alise they are also pay­ing for ex­pen­sive in­sur­ance.

“Con­sumers should not be over­pay­ing for their credit life in­sur­ance, but many are also un­aware they can switch their ac­counts when another pol­icy of­fers them a bet­ter rate for the same level of pro­tec­tion, and they can­not be pe­nalised for mak­ing that choice,” Knott says.

Ac­cord­ing to the Na­tional Credit Act, credit life in­sur­ance in­cludes “cover that is payable in the event of a con­sumer’s death, dis­abil­ity, ter­mi­nal ill­ness, un­em­ploy­ment or other in­sur­able risks that are likely to im­pair the con­sumer’s abil­ity to earn an in­come or meet the obli­ga­tions un­der a credit agree­ment”.

Credit life can be is­sued un­der ei­ther a short-term or a long-term in­sur­ance pol­icy.

In terms of the Long Term In­sur­ance Act, credit life in­sur­ance is clas­si­fied as a long-term pol­icy by virtue of its pay­ing out upon a life or dis­abil­ity event.

Ac­cord­ing to re­search by Fin­mark Trust, there are about 5 450 credit providers in the coun­try, hold­ing over 36 mil­lion ac­counts.

Banks dom­i­nate the con­sumer credit mar­ket, with a mar­ket share of 80%. Re­tail­ers’ share of to­tal credit granted in 2013 was 3.5%, while non-bank fi­nanciers’ share was 5.8%.

Knott says many re­tail­ers make it a re­quire­ment that con­sumers buy the re­tail­ers’ credit life in­sur­ance prod­uct as a con­di­tion for re­ceiv­ing their in-house mag­a­zines. She says con­sumers should be en­ti­tled to re­ceive these pub­li­ca­tions re­gard­less of where the credit life in­sur­ance is held, be­cause the magazine is linked to the store and not to the in­sur­ance prod­uct.

The Credit Om­bud has the fol­low­ing ad­vice about credit in­sur­ance:

• Do not buy an in­sur­ance prod­uct that you do not fully un­der­stand.

• The sales­per­son is by law obliged to tell you that you are not obliged to take out credit in­sur­ance sold by the credit provider; you are en­ti­tled to shop around for credit life in­sur­ance.

• If you do not want to take out credit life cover, be­cause you al­ready have suf­fi­cient in­sur­ance to cover the debt in the event of your death, dis­abil­ity or re­trench­ment, you will have to pro­vide proof of this when you en­ter into the credit agree­ment.

• The sales­per­son must dis­close all the com­mis­sions and fees to you up­front when you buy cover.

• You should be given a copy of the pol­icy doc­u­ment or sched­ule, which sets out the ben­e­fits. You can ask for a copy of the in­sur­ance sched­ule be­fore you de­cide whether or not to take up the in­sur­ance of­fer.

• Read the fine print of a loan agree­ment to de­ter­mine whether credit life in­sur­ance is re­quired or in­cluded, and if so, what ex­actly it cov­ers.

• Credit in­sur­ance cover will lapse if the ac­count is in de­fault.

• En­sure that your fam­ily knows about the credit life cover you have taken out, so that, in the event of your death, they can sub­mit a claim timeously.


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