If you are being retrenched or forced to take unpaid leave due to the lockdown, you may be able to claim from your credit insurance policy.
Many people, especially those with short-term debt and even store cards, may have credit insurance without even being aware of it. This insurance covers your debt repayments if you are retrenched, experience a loss of income are disabled or die.
Some credit insurance policies provide for a “loss of income” provision if your employer has forced you to take unpaid leave or is unable to pay you due to the lockdown. It also covers you if you contract COVID-19 and are unable to work.
Under the loss-of-income provision and retrenchment provision, your debt repayments could be covered for up to 12 months or until you earn an income again – whichever is shorter.
Unfortunately, many people opted out of credit insurance, especially when it came to their mortgages or car finance. Lee Bromfield of FNB Life says that only approximately 25% of their debtors book has credit insurance. However, lenders focusing on short-term loans such as African Bank, Capitec and Bayport tend to have a higher percentage of credit insurance policies as this is often a compulsory insurance.
Credit providers will each have their own specific cover, so you need to speak to your credit provider for details. In some cases, the loss of income provision would only apply to loans or insurance taken out post August 2017 when new regulations were issued by government requiring credit insurance to provide this protection. However, Nedbank has announced that they will extend the cover retrospectively to those who took out the cover prior to 2017. African Bank’s cover also extends to loans taken prior to 2017.
Also be aware that a self-employed person may not have the loss of income protection unless they specified that they were employed and paid the appropriate premium.
“Generally, credit life insurance policies don’t cover retrenchment for self-employed customers because from an insurance point of view, businesses can fail for a number of reasons that are difficult to quantify. However, if a customer had and qualified for such cover before switching to Yalu, the Yalu Credit Life Insurance Plan would pay out that valid claim,” says Nkazi Sokhulu CEO of credit insurance provider Yalu.
It is also important to make your claim before you miss a payment as the premium is usually linked to your credit installment. Some credit insurance policies do allow some leeway.
Sokhulu says the Yalu Credit Life Insurance Plan provides up to two months to miss your premiums. “We do, however, still need to debit you for the missed months by the 3rd consecutive month. This means on the third month we will debit you for 3 months’ worth of your premiums. If we can’t debit you then, unfortunately your policy would lapse. This means you will no longer have cover.”
Not all credit insurance is equal
As not all credit insurance is equal, it is important to check with your credit provider as to what your insurance covers. Over the last week most banks have extended their terms and conditions, so it is worth following up again to see if you now qualify.
Basani Maluleke, CEO of African Bank says the bank’s policies pay the full credit insurance when a customer is put on short-time and has an income reduction of more than 20%, as well as unpaid leave.
“African Bank can cover their monthly payments for up to 12 months through their credit life insurance policies. Submitting the appropriate information and required documentation is essential to access these benefits,” highlights Maluleke.
Bayport’s credit insurance also covers short-time and compulsory unpaid leave for up to six consecutive months per benefit, settling a client’s monthly instalment for every month that a client is affected. The cover also applies to clients who have been hospitalised for more than three consecutive days, paying one monthly instalment in such a circumstance.
Capitec confirmed that under its agreement with Guardrisk, the cover pays debt repayments in the case of unpaid leave in full, but that in the case of a reduced income, the debt repayment will be covered in line with the reduction in income. For example, if you only receive 40% of the income the bank took into account when issuing the loan, then 60% of your instalment is covered by the insurance.
None of the big four banks provide cover if you are still receiving an income, even if it is reduced. You would have to have lost a full calendar month of income to claim.
FNB’s credit insurance does include cover for people who may rely on commission and are unable to service clients. It also covers contract workers such as a contract teacher who may not be able to teach. FNB says that the cover would not include a self-employed person who has had to close their business due to the lockdown, unless at the time of taking the cover the customer declared themselves as permanently employed and has been paying the premium for the benefit.
Dushen Naidoo, Managing Executive: Insurance, Retail and Business Bank SA, Absa says the bank has reviewed their credit life products’ retrenchment benefits to provide more comprehensive cover.
“Retrenchment benefits under credit life policies will pay the minimum instalment on customers’ credit agreements for three months if they are unable to earn an income. This is applicable to all credit life claims that occur between 1 April and 30 June 2020. Normal terms and conditions will apply outside of the relief measures implemented.” This means that during the three-month special relief period, the bank will cover temporary loss of income, for example unpaid leave, provided that they receive the supporting evidence.
Nedbank confirmed that mandatory credit life on unsecured loans will cover the payment of unsecured loans for a period of 12 months, the outstanding term of your loan, or until you are able to earn an income (whichever is the shorter period).
“For all clients where the loan commenced after 1 August 2017, and who selected the insurance cover, their insurance policy provides a benefit for both unemployment or not being able to earn an income. Nedbank Insurance has also extended this benefit to those clients whose insurance policy commenced prior to 1 August 2017, recognising the importance of assisting all South Africans during this trying time.”
Nedbank has said that as it takes time to process the claims, if a client is unable to make the next debt repayment, it recommends that the immediate payment holiday first be implemented, affording enough time to collect the necessary documentation to process the insurance claim. All valid claims will be paid directly into your unsecured loan account.
Standard Bank confirmed that if the loan granted by Standard Bank required compulsory comprehensive credit life insurance cover, and the loan was granted after 9 August 2017, its comprehensive credit life insurance product will cover installments for up to 12 months in the event of you becoming unable to earn any income. Standard Bank lending products that require comprehensive compulsory credit life insurance include all personal term loans and home loans to customers who have a combined income of less than R25 000.
For a customer who took out an applicable loan prior to 9 August 2017, Standard Bank will provide discretionary relief in respect of that customer’s credit agreement installments for up to three months if the customer is unable to earn any income. This discretionary relief will be available in the period between 1 April and 30 June 2020. These installment relief payments fall outside the credit life insurance policies.
Where a customer has chosen to purchase a voluntary Standard Bank credit life insurance policy linked to other lending products such as home loans, credit cards, vehicle and asset finance, student loans and revolving personal loans, they should review their policy terms to understand the events that they are covered for. Standard Bank urges customers to apply for their qualifying credit protection relief as soon as possible.
Check your statements
The best way to check whether or not you have credit insurance is to check your credit statements to see if you have been paying premiums. In the case of store cards it is often described as “balance protection”.
This article first appeared in City Press.