Are you paying for unnecessary credit insurance?

After two years of paying off a Standard Bank personal loan, City Press reader Esau decided to re-read the terms of the loan. He noticed that the credit insurance quote included retrenchment cover. As he is a contract worker, he wrote to City Press to find out if he would actually be covered by the insurance he was paying for.

“What would happen if I lost my job or my contract was not renewed? People are saying that the insurance will only cover people who have a permanent position. If that is correct, why has the bank given me insurance that would not help me?” asked Esau.

Felix Kagura, head of long-term insurance propositions at Standard Bank, says credit life insurance is a policy designed primarily to manage debts in the event of the insured’s death, disability or terminal illness, and that retrenchment cover is an additional benefit on the main policy offered by Standard Bank.

“Whether on a personal loan or revolving credit plan, credit life insurance is offered with the option to choose the retrenchment benefit as part of the plan, and it is at the discretion of the client to advise the bank if they would like this benefit,” says Kagura.

In other words, you have to select this benefit. What is not clear is why Esau was offered retrenchment cover when he applied for the loan as Kagura confirmed that the cover was for people who were permanently employed and not for someone who was a contract worker, although this can be at the bank’s discretion.

“Standard Bank will consider how long the insured has been working on said contract. If the insured has been working for two years or longer on the same contract, Standard Bank will consider the claim,” says Kagura.

This is because, under the Labour Relations Act, if an individual has been working on an open-ended contract, they qualify for the same legal protection as a permanent employee.

As Esau was concerned that he would not qualify for retrenchment cover if his contract was not renewed, he elected to remove the retrenchment cover from his insurance offering.

Considering that the insurance would not have paid out in the first two years of the loan due to the nature of his employment, Standard Bank agreed to refund R4 000 of the premiums.

Esau’s story highlights the importance of asking questions before you sign up for anything – find out what you are paying for and when it will pay out.

If you have existing credit insurance on your loans, find out what cover you are paying for. You also have the right to shop around for insurance at a better price.

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