Credit life cover is one of the last things that people think about when they are doing their financial planning. In fact, the National Credit Regulator has found that many people do not know it exists and what it entails.
But purchasing credit life cover is one of the best things that you can do for yourself and your family when you decide to take out credit as it settles your debt under certain circumstances when you’re no longer able to.
What if you are retrenched?
If you get retrenched, it is natural to worry about how you are going to cover your debt repayments with the loss of income, but your credit life cover will help you pay for it for a period of time until you’re employed again. Typically, this is up to a year.
All you need to do is take your retrenchment letter to your service provider to submit your claim. The service provider will ensure that your debt repayments are covered each month.
It is important to note that your credit life cover cannot include retrenchment if you’re a pensioner or self-employed.
Disability and terminal illness
Life is unpredictable and disability and terminal illness can strike at any time, and this usually means less income. Unfortunately, less income can also mean less money available to pay your debt.
Credit life cover can help you take care of your debt while you nurse yourself to better health. However, you should also note that some insurers do not cover wilful and self-inflicted injuries and suicide. Speak to your service provider or read your contract for exclusions, and other terms and conditions.
What happens if you die?
If you pass away, your family will not have to worry about your debt. Credit life cover will give them a chance to mourn your death in peace because your debt will be paid off.
Your family needs to provide your service provider with your death certificate. Don’t confuse credit life cover with life cover though, because the former does not pay for your funeral expenses, it just pays for your debt. Your family will still need to find the means to pay for your funeral.
Credit life cover is usually compulsory, especially for unsecured loans. It enables the creditors to recover their funds from you in case you are unable to. Creditors will offer you their own cover – however, you can decide to purchase your policy from a service provider of your choice instead. Shop around, and compare prices to find the best offer.
Your credit life cover must cover your entire debt and the law requires that its fee be capped at R4.50 per R1000 owed. If your service provider charges you more than that, you need to report it to the Credit Ombudsman.
For any debt related queries, contact our consultants on 086 999 06 06 or email us at [email protected].