YOUR
MONEY
SORTED
CREDIT LIFE INSURANCE
You may be repaying more on your loan than you needto
I
T’S essentially a good thing to have – it’s there to pro-
tect you if something happens and you can no longer
pay your loan instalments.
But in the past, credit life insurance has had a bad
reputation because of inflated premiums or because
consumers weren’t aware they were paying for it.
Things have changed over the past two years and now
there are limits on premiums. But some people still don’t
realise they could be paying smaller premiums – or that
they’re paying for it at all.GETHELPHERE
BY LETITIA WATSON
Send suggestions for topics and requests for info to [email protected].
We may answer your questions in this column but won’t reply personally.InAugust 2017 newregulations
came into effect limiting credit
life insurance premiums to a
maximum of R4,50 per R1 000
of the loan. For home loans, it’s
R2 per R1 000.
Unfortunately, these regula-
tions are applicable only to credit
taken out after August 2017.
Many people are still paying
old premiums – even R15 per
R1 000 of the loan. The difference
in repayments pre- and post-
regulations can run into thou-
sands of rands.
Yalu Financial Services offers
the following example of the dif-
ference between old and new
premiums on a personal loan of
R60 000, with a repayment term
of three years.
SBEFORE AUGUST 2017: R8,50
per R1 000 over 3 years is R510
a month x 36 months = R18 360SAFTER2017:R3,50perR1 000
over three years is R210 a
month x 36 months = R7 560
SDIFFERENCE: R10 800 over
36 months or R300 a month
If you took out insurance be-
fore the new regulations and are
paying more than the maximum
premiums, shop around for the
best premium for the cover you
need.
A credit provider can’t force
you to take their option – you can
take out your own credit life in-
surance with a different compa-
ny. The only requirement is that
you prove to the credit provider
that you have insurance if that’s
one of the loan conditions.
You can also change your insur-
ance company while you’re re-
paying the loan if you can find
lower premiums for the same
cover elsewhere.1
AVOID INFLATED PREMIUMS
SSomepeopleareunaware
they have credit life insur-
ance, credit ombudsman
Nicky Lala-Mohan says.
This is often the case
when the insurance premium
is lumped in with the month-
ly debt amount you’re paying
off.
You pay a single monthly
amount and don’t realise it
includes insurance – which
means you might fail to
claim if you become unfit
for work or are retrenched.
And if you default on a
loan, your credit score will
be negatively affected. Also,
families might not realise
there’s credit life insurance
and might try to settle thedebtaftertheir loved one’s
death.
SThe monthly premiums of
credit life insurance should
go down as the debt shrinks
after each monthly repay-
ment.
Make sure your premiums
are reduced and that the
insurer doesn’t charge a set
premium for the duration of
your loan.
SCheck for exclusions in your
insurance policy. Claims
might be refused under con-
ditions such as voluntary
retrenchment, retirement
or if you’re self-employed.
SIf you miss monthly premium
payments, you’re no longer
covered.3
POTENTIAL PITFALLS
Manycreditprovidersrequire
you to take out life insurance as
security for debt such as person-
al loans or items bought on cred-
it. You can also take out credit life
insurance on home and car loans.
If you’re retrenched from your
job, die, become terminally ill or
medically unfit to work while you
still have the loan, this insurance
will settle the balance of your
debt to the creditor or cover your
premiums for a certain period,
depending on the policy.
There are a few differences
between insurers, but generally
claims are paid out as follows:SDEATHThedebtissettledin
full should you die.
SPERMANENT DISABILITY
AND TERMINAL ILLNESS
The debt is settled in full.
STEMPORARY UNFITNESS
FOR WORK Monthly premi-
ums are covered for a specific
period, for example 12 months,
until the end of the loan period
or until you recover and can
return to work.
SRETRENCHMENT Monthly pre-
miums are covered for a specif-
ic period such as six months,
until the end of the loan period
or until you find a new job.WHENANDHOWDOESCREDIT
LIFE INSURANCE PAY OUT?SThe Credit Ombudsman: http://www.creditombud.org.za, 0861-662-837 or
[email protected]
SFinancial services companies such as Yalu and Switch2 have premium
calculators on their websites.dto
you.co.za 8 AUGUST 2019 | (^49)
YOU LIFESTYLE