Credit life: don’t be ripped off

This may be the first time you hear about credit life, but if you have ever purchased anything on credit, chances are; you have bought credit life.

Credit life is the insurance you pay on your loan; whether it is a personal loan or even car finance.

Credit life on its own is not bad or illegal, but it is how it is administered to the consumer that becomes a problem.

Some companies, especially micro-lending companies that offer credit to consumers, may use credit life to rip off customers by telling them that it is compulsory and then charge rates that are above the industry norm.

This is one way for lenders to circumvent the interest rate and fee limits on credit imposed by the National Credit Act.

According to the National Credit Regulator, credit life insurance is cover “payable in the event of a consumer’s death, disability, terminal illness, unemployment or other insurable risk that is likely to impair the consumer’s ability to earn an income or meet the obligations under the credit agreement”.

In terms of the act, a credit provider is entitled to require a consumer to maintain credit life insurance during the time of the agreement so that the loan will be paid should something happen to the customer.

A consumer cannot elect to not include credit life insurance as part of the credit agreement if required.

In some cases the credit provider will offer to provide credit insurance, but insurance can only be provided by an insurance company so the credit provider will have a contract in place with that insurer.

If the customer takes out credit life insurance through the credit provider then the credit provider needs to provide the consumer with the full details and may not add any surcharge, fee or additional premiums above the actual cost of the insurance.

A consumer is entitled to shop around for his or her own insurance and provided the policy has the same cover as the one proposed by the credit provider.

The credit provider cannot deny credit if the consumer takes out their own policy should he not be satisfied with the cover presented by the credit provider.

A consumer can also cede existing life cover to the credit provider as long as it meets requirements in terms of cover.

However, one needs to be cautious in this regard. Phumelele Ndumo says in her book From Debt to Riches: “When you cede your life policy to a creditor, you give the creditor the first right to the payout.

“Unfortunately, the creditor could get the money from your life policy even if you have paid off the debt.

So, as soon as you have paid off your debt, you must cancel the cession and name your beneficiaries to ensure that the money is paid out to your beneficiaries”.

Although many credit providers and micro-lenders such as African Bank may charge for credit life, Capitec Bank says it does not sell credit life cover to its clients.

Life and retrenchment cover are automatically included at no additional fee to our clients who take credit for longer than a six-month term.

“We took insurance cover on our outstanding book from Channel Life, now Sanlam. This book cover policy has been in place for more than two years and is renewed yearly. We also do not charge policy premiums,” says Charl Nel, head of strategic communications.

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