If you have any credit facility or a loan, there is a good change you have credit life insurance. This is an insurance which settles the loan should you die or become disabled, and in some cases covers your repayments for a period of time if you are retrenched. Unfortunately, many consumers do not even know they have this insurance in place and do not claim when they are retrenched.

Tlalane Ntuli, co-founder and Chief Operating Officer of Yalu, a digital insurer that offers credit life insurance, says most consumers with an existing personal loan don’t even realise that they have credit life insurance.

“The chances are incredibly slim that they even have a policy document or any regular correspondence on their credit life cover, so even if they wanted to change their cover, or get a better handle on how much they are paying and for what benefit, most would not know even where to start, let alone claim if they needed to.”

You can shop around

Consumers are also not aware that they can shop around for credit insurance. According to the National Credit Act you are not required to take out credit life through the credit provider and you are entitled to shop around for a better rate.

You are also entitled to use existing life cover or funeral cover you already have to meet your credit provider’s requirement. In some cases, micro-lenders sell funeral cover as a form of credit life for smaller loans however this does not provide cover for disability or retrenchment.

In August 2017, price caps were introduced on how much a credit provider could charge for credit insurance and consumers were also allowed to switch to other independent credit life insurers.

This was done to stop widespread abuse in the industry, where microlenders were using credit insurance as a way to bypass interest-rate caps by charging excessive fees ‒ as much as R56 a month per R1 000 borrowed. There were also headline-grabbing cases where furniture retailers like JD Group and Lewis were mis-selling credit insurance policies.

The new caps have a maximum rate of R4.50 a month per R1 000 borrowed, however it only applies to loans taken since the new rules were introduced. Many consumers who have existing loans are unaware that they have the right to shop around and switch to another insurance provider.

If you have taken out a loan prior to August 2017 and you are paying more than R4.50/R1 000 a month, it may be worth doing a price comparison with other credit life insurers like Yalu.

For example, on a loan of R100 000 with a credit life premium of R4.50 per R1 000 compared with R8 per R1 000, over a loan term of three years you could save R12 600.

• Total credit life paid at R4.50 per R1 000 over three years: R450 per month x 36 = R16 200
• Total credit life paid at R8.00 per R1 000 over three years: R800 per month x 36 = R28 800

Know the rates

You can calculate the rate you are being charged by dividing the loan amount by 1 000 and then dividing the premium by this amount. For example if the loan amount is R10 000 and the premium is R30 then divide R10 000/1 000 = 10 then divide the premium R30/10 = R3 per R1 000 of cover.

Check that your rate is at least in line with the new maximum premiums, and remember that you can shop around even if you are taking out a new loan.

• A maximum of R2 per R1 000 of credit may be charged for mortgages
• For affordable mortgages of R450 000 or less the same R2/R1 000 will apply except for customers over the age of 55 who can be charged up to R2.50.
• All other credit facilities, credit cards, store cards or loans can only charge a maximum monthly premium of R4.50/R1 000 of credit. However, if the cover provides for the full payment of the loan on temporary disability then an additional R1/R1 000 premium may be added

Death or disability: The credit insurance must pay out the outstanding balance in the case of death or permanent disability. In the case of temporary disability, the insurance should cover the monthly instalments up to a maximum of 12 months unless the person is able to work before then.

Retrenchment: If the consumer is retrenched, the insurance should cover instalments up to a maximum of 12 months assuming that the customer has not found employment in that period or that the loan has not been repaid by then.

Only charge for actual risks: If the customer is already disabled then the cost of disability cover may not be included in the premium. If a customer is a pensioner, then the cost of unemployment cover may also not be included in the premium.

Matching risks: If the credit provider charges the maximum allowable rate, the credit provider must be able to demonstrate that the premium is in line with the actual risk presented by the customer. For example a loan repaid over three months would not carry the same risks of something happening to an individual compared to 12 months.

This article was sponsored by Yalu.co.za