People generally tend to confuse credit life insurance with other long-term insurance products because it is offered by long term insurers. But, credit life insurance has a specific purpose and people need to fully understand what it is and its benefits to make sure that all their financial planning needs are being properly and appropriately met.
This is the advice of Lenerd Louw, CEO of 1Lifedirect, South Africa's first and only truly direct life insurance provider.
Credit life insurance is an insurance product that is taken out to specifically cover your debt when you buy goods on credit. If you die, become disabled or terminally ill, or if you are retrenched before you have fully paid the amount you owe, your credit life insurance will pay the outstanding debt on your behalf. This is very different from life insurance and other long-term insurance products such as investment insurance policies like retirement annuities and endowments," says Louw.
Anyone who is entering into a major financial contract with a finance provider to get finance for a car or any other significant expense must make sure that they have sufficient credit life insurance to protect themselves and their dependants should they die or, if they are unable to earn an income due to being disabled or terminally ill.
Credit life insurance offers the peace of mind that if you are unable to pay back what you owe, you will be covered. It also provides the assurance that your family won't be saddled with your debt when you die or if you can't afford to pay the monthly instalments.
So in a nutshell, anyone who has significant outstanding debt should have credit life insurance on that debt," explains Louw.
According to Louw, credit life insurance, often referred to as credit or instalment protection, is usually offered by the vehicle financing company, bank, micro-lender or shop providing the loan for your new car, lounge suite, and even your child's education. Credit life insurance is lumped with the overall loan and the premium forms part of your monthly instalments.
Some people applying for credit or a loan don't realise that credit life insurance is included in their credit or finance agreement. This means that they end up signing for it but don't realise what benefits they are entitled to.
It could also mean that they have bought into an expensive policy with too much cover, or one that is inadequate.
So, when you buy anything on credit, particularly if it is a major expense like a new vehicle for instance, make sure that you ask whether you are also buying into a credit life insurance product. If so, find out how much it is going to cost you each month, how much cover you get and what other benefits you will be entitled to.
If the product being offered does not suit your needs, find another one that is more appropriate. You have the right to shop around and choose an insurer that is better suited to meet your insurance needs and budget.
In fact, in terms of the new National Credit Act, as well as the Long Term and Short Term Insurance Acts, finance providers are not allowed to dictate to their clients who they should purchase insurance from when applying for loans or credit.
Also remember that you cannot be forced to take out another credit life insurance policy if you already have sufficient long-term insurance policies in place to secure the debt," advises Louw.
He concludes saying that not all credit life insurance products are created equal and consumers must take care to familiarise themselves with the policy terms and conditions.