Credit Life insurance covers debt obligations in the event of the insured’s death, disability, a dread disease or retrenchment. It is usually sold as part of a loan or credit agreement.
As much as it sounds like a grudge purchase, it is actually a necessity. Consider what would happen if somebody didn’t have this cover and they lost their job -they’d have to find a way to make payments and that usually leads to taking more loans and getting deeper into debt.
If a consumer has credit or loans, they should have credit life insurance. In this blog, we’ll tell you everything you need to know about it.
How does Credit Life insurance work?
When somebody takes out credit or a loan, the creditor or bank may require them to take out this type of insurance as part of the account. It allows the creditor to ensure they are paid back, regardless of your circumstances. You often don’t have a choice about whether you want to take it out.
In the case of death, total disability or dread disease the outstanding liability (or remaining credit balance) will be paid out. If the insured is temporarily disabled or retrenched, credit life insurance will cover the monthly debt review instalment for up to six months.
Dual cover for a second assured person is available at a small increase in premium.
The benefits of Credit Life Insurance
Of course, nobody wants to spend extra cash if they don’t think it’s necessary. Unfortunately, this is a necessary purchase. You’ll be glad to know, though, that there are quite a few benefits that come with credit life insurance.
Protection of loved ones
If something unfortunate were to happen to a consumer with active credit - let’s say they pass on - the debt will still have to be paid. Credit life insurance will pay out the remaining balance.
However, without this insurance, the consumers' loved ones will be responsible for the burden of this debt. It could lead to a lot of trouble for them. Credit life insurance helps to protect them against this.
Additional cover (disability or retrenchment)
Retrenchment, illness, and disability can happen unexpectedly. Many may not be financially prepared for the financial consequences of this.
For instance, if somebody loses their job - they will no longer have an income to repay their debts. This can lead to creditor harassment, court judgements, and many other such unpleasant experiences.
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Credit life insurance helps to avoid all of this. It covers your repayments for six months of unemployment, allowing you to get back on track without financial stress.
Important information about Life Cover Insurance to consider
As with every purchase, there are a few things a consumer should be aware of. For example:
People often confuse Life Policies with Credit Life cover - and the main thing they compare is the cost.
For life policies - each client will be assessed on an individual basis. This means prices vary greatly.
With credit life policies, an entire group of people are considered to have the same risk, meaning the cost is the same for everyone.
You may already have Credit Life Cover
André Goethals, Quality Assurance and Compliance Manager at IDM Protect, states that it is important to find out if you have credit life cover on your debt obligations.
The importance of knowing your Life Cover Insurance premium details
“The consumer is often charged a non-market related premium. Sometimes unscrupulous lenders are using credit life premiums to circumvent the limit on fees and interest placed on them by the National Credit Act.”
Goethals further adds: “Often consumers and their families are not even aware that they have credit life cover. In the event of a claimable event; death/disability, etc. debts are then redeemed from other sources, e.g. life cover or sale of assets.
IDM Protect clients can however rest assured that due to our link with DebtBusters this will not happen. Our systems are programmed to red flag immediately on non-payment, and someone from the support people will contact the client. DebtBusters’ people are all highly trained, and will be able to assist in managing this process in a professional and supportive manner.”
Is Credit Life insurance worth the monthly costs?
For most people all forms of insurance are a grudge purchase. In the event of a claim however the wisdom of their purchasing decision is proved.
Contact our agents on 0869 99 06 06 if you would like a no obligation quote, or would like more information.