How many people have died without their family ever knowing they had credit life insurance to take care of debts?
Think about it…
You need money and you need it like as in yesterday. The last thing on your mind is worrying about the cost of the credit life insurance. All you want to know is where must you sign.
So what happens if you die?
- Does anyone ever contact the furniture/clothing company to ask whether you had credit life insurance?
- How many of us would just settle the debt and move on without giving a thought to the possibility of credit life insurance?
- Wouldn’t this make credit life insurance an extremely lucrative business if many of us seldom claimed?
What if you could the lowest interest rates on the market and make up the lost profits through the cost of your credit life insurance? You’d have a ton of new customers that’s for sure.
We can’t say whether any company approaches it with this mindset, but it certainly is tempting, isn’t it?
To prevent this from happening, the Minister of Trade and Industry, Rob Davies, has put in place a limit to the costs of credit life insurance. This kicked in from the 10th of August 2017.
The problem with this is that this limit only applies to agreements signed on or after this date. Now might be a good time to revisit your loan taken out prior to this date. Try to negotiate a better rate or shop around for a better rate elsewhere.
So what is the maximum they can charge for credit life insurance?
In terms of the National Credit Act, credit life insurance is mandatory. Basically you have no choice in the matter and a creditor may insist that you take out cover.
The cost of this cover is limited as follows:
- Mortgage loans – R2 per R1, 000 of the amount loaned
- Affordable housing mortgage loans where the applicant is older than 55 – R2.50 per R1, 000 of the amount loaned
- All other loans – R4.50 per R1, 000 loaned
How much could this end up costing you?
Imagine lending R100, 000 at a cost of R4.50 per R1, 000:
- 100 x R4.50 = R450 per month for your credit life insurance.
How much life insurance could you buy for that amount somewhere else?
Take a 60 year old male for instance. This guy:
- Is a truck driver, and
- Earns R10, 000 a month
High risk in other words.
This chap could expect to buy R175, 000 worth of life cover for the R450 per month. That’s pretty much in the same ball park, but what if a far younger person was applying for that same loan?
Take a 35 year old female for instance. She’s safe as houses:
- Doesn’t smoke
- Is an administrator doing mostly office work, and
- Earns R10, 000 a month as well
She would qualify for around R3, 5 million in life insurance for the same price.
Can you see that it makes sense to shop around for life insurance?
But can you shop around for credit life insurance?
Yes, of course you can.
- You have the right to choose your own insurer, and
- you can switch insurers at any time.
- In fact, you may use an existing policy if you so wish.
Your credit provider may insist on having a security cession lodged against this policy, but don’t worry, this cession will be cancelled once the loan is repaid.
The good news with credit life insurance is that it isn’t usually underwritten.
This means that the cover isn’t dependent upon you having to answer medical questions or go for any tests.
Standard life insurance will require you to undergo underwriting
This could result in you not having cover for certain health issues.
Your credit provider cannot charge you interest on the premium you pay either.
That means they can’t add the monthly or annual cost to the amount you owe and then charge you interest on it as well. By the way, this applies to your homeowners insurance as well.
One problem with credit life insurance is that you continue to pay the same cost even when the amount you owe is virtually nil.
And it’s not as if you can take the life insurance with you once you’ve paid off the debt. Not quite fair.
It certainly will leave a bitter taste in one’s mouth having to pay more than R4.50 for every R1, 000 you loaned prior to the 10th of August 2017.
Approach your creditor and see if they’re willing to renegotiate the cost of your credit life insurance. If not, it may be worth your while to shop around for a brand new loan – or credit life insurance – elsewhere.
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Until next time.
The InsuranceFundi Team