http://www.drum.co.za8 AUGUST (^2019) | 43
YOUR
MONEY
SORTED
CREDIT LIFE INSURANCE
You may be paying backmoreon
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 rap
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
InAugust 2017 newregulations
cameintoeffectlimitingcredit
lifeinsurancepremiumstoa
maximumamountofR4,50per
R1 000 oftheloan.Forhome
loans,it’sR2perR1000.
Unfortunately,theseregula-
tionsareonlyapplicabletocred-
ittakenoutafterAugust2017.
Manypeoplearestillpaying
oldpremiums– evenR15per
R1 000 oftheloan.Thediffer-
enceinrepaymentspre-and
post-regulationscanruninto
thousandsofrands.YaluFinan-
cialServicesoffersthefollow-
ingexampleofthedifference
betweenoldandnewpremiums
ona personalloanofR60000,
witha repaymenttermofthree
years:BEFORE AUGUST 2017:
R8,50 per R1 000 over 3 years
is R510 a month x 36 months =R18 360
AFTER 2017: R3,50 per R1
000 overthreeyearsisR210a
monthx 36months= R7 560
DIFFERENCE: R10 800 over
36 months or R300 a month.
Premiums don’t have to be
R4,50 per R1 000 under the new
regulations – that’s the maxi-
mum. This allows you to shop
around for the best price for the
cover you need.
A credit provider can’t force
you to take their option – you
can take out your own credit life
insurance with a different com-
pany. The only requirement is
that you prove to the credit pro-
vider that you have insurance if
that’s one of the loan conditions.
You can also change your in-
surance company while you’re
repaying the loan if you can find
lower premiums for the same
cover elsewhere.1
AVOID INFLATED PREMIUMS
Somepeopleareunaware
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 impacted.
Alternatively, families
might not realise there’s
credit life insurance andmighttrytosettlethedebt
aftertheirlovedone’sdied.
The 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
premiumforthedurationof
yourloan.
Check for exclusions in your
insurance policy. Claims
might be refused under
conditions such as voluntary
retrenchment,retirementor
ifyou’reself-employed.
If 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:DEATHCOVERThedebtisset-
tledinfullifyoudie.
PERMANENT DISABILITY
AND/ORTERMINALILLNESS
Thedebtissettledinfull.
TEMPORARY UNFITNESS
FOR WORK Monthly premi-
ums are covered for a specific
period, for example 12 months,
until the end of the loan period
oruntilyourecoverandcan
returntowork.
RETRENCHMENT 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: creditombud.org.za, 0861-662-837, or
[email protected]
SFinancial services companies such as Yalu and Switch2 have premium
calculators on their websites.to
BY LETITIA WATSON ADVICE