Credit life insurance – What is it?
When you take out a loan or buy a car, you will often be encouraged to take out credit life which is an insurance to settle the loan should you die, become disabled or lose your job.
Credit life can be a useful insurance as it settles your loan if something happens to you, unfortunately, however unscrupulous lenders are using it to circumvent the limit on fees and interest placed on them by the National Credit Act (NCA).
According to the NCA, credit life insurance includes: “… Cover that is payable in the event of a consumer’s death, disability, terminal illness, unemployment, or other insurable risk that is likely to impair the consumer’s ability to earn an income or meet the obligations under a credit agreement…” A credit life insurance product pays off the loan in the case of one or more of the above. As the payout decreases in correlation to the repayment, credit life insurance can be called a ‘decreasing sum assured product.
Credit life insurance can also be combined with the asset protection cover. Such a product provides cover for accidental damage or destruction of goods, fire or theft from the premises, as well as riot cover. The NCA makes it possible for credit providers to insist on credit life insurance as well as product protection insurance. Claims in respect of the latter must be submitted within 30 days in the case of the asset being stolen, destroyed or damaged. The insurance provider then pays the insured for the loss, in so doing the provider is relieved of the liability of continuing to pay for an asset they no longer have access to.