Credit life insurance: What are the costs?
If you have purchased anything on credit, chances are; you have bought credit life. Credit life insurance is the insurance you pay on your loan; whether it is a personal loan or car finance. But do you know what credit life insurance costs are?
It is a single need assurance product that you can take out when you buy goods on credit. Should you die or become disabled before you have totally repaid the amount owed, this insurance will pay the outstanding amount on your behalf.
Also known as ‘credit protection’ or ‘installment protection’ credit life insurance is often sold as part of a loan or credit agreement.
The problem with credit life insurance is that the credit providers often prey on people who are already in financial difficulty and may not qualify for loans from better known institutions and these credit providers may threaten not to provide the loan if you do not take out the insurance. In desperation people accept the deal, however, at those insurance premium levels the client will just fall further into debt, with no hope of getting any debt relief.
People often, do not realise that they can claim against their insurance policy if they are retrenched. They recreant on their debt repayments or tap into their savings to pay off the debts when they could claim from their insurance.
Before signing up for an insurance policy, do your homework first. Credit life through the banks or larger insurers can be cheaper than taking out individual insurance if you have a health risk or you are more than 40 years old as it does not require underwriting; however it can be more expensive if you are younger and in good health. In this case you may be better off taking out an individual policy which rewards you for being a lower risk client.
The overcharging of consumers with credit life is rife and the new regulations are likely to cap the cost of credit life at R4.50 per month per R1 000 of cover.
Here is an example of a situation that we came across: Let’s take someone who is paying credit life on a car loan for R137 a month. The balance of this person’s loan is R64 000 and he/she has four years and four months left on their term.
Here at National Debt Advisors we understand that you might be under debt review, which is why we offer you the best financial assistance and the most affordable covers under one umbrella.