Imagine you’re retrenched and soon struggling to make ends meet. You’re desperately worried about falling behind on repayments. Then the sigh of relief when you discover your loan agreement includes some cover for just such a situation.
The cover is called credit life insurance and lots of people don’t know they have it, or even what it is, but it could be a lifeline when things go wrong and you’re struggling to repay debt.
Recent examples include the unrest in KwaZulu-Natal and Gauteng and the Covid-19 pandemic, where credit life insurance provided vital relief when events beyond their control disrupted people’s income.
Nozizwe Fakude, head of consumer insights at specialist loans provider, DirectAxis, says consumers sometimes don’t realise they have credit life insurance because the premiums are part of the loan repayment instalments. Others confuse it with life cover and may assume they’re only covered in case of death.
While policies differ, in most cases credit life insurance provides some security should you not be able to repay your debt due to retrenchment, critical illness or disability and ensures that your family is not burdened with your debt should you pass away.
Some loan providers insist on credit life cover, while others offer it as an option. Credit products such as credit cards, personal loans, vehicle finance and home loans are typically coupled with credit life policies.
“If you’re concerned about your ability to continue meeting your repayment obligations should you lose your income, it’s worth checking what existing cover you may have. You can confirm this by contacting the credit provider,” says Nozizwe.
But she warns not to assume that if you have credit life insurance that it will automatically cover all your debt. There are different kinds of policies, offering different benefits and terms and conditions. For example, some cover the debt in full, while others will cover payments for a period, such as 12 months, in the case of retrenchment.
“Credit life insurance isn’t a cure-all but can make an unforeseen and financially stressful situation easier to deal with. The important thing is to know whether you’re covered and what the terms and conditions are because then you’ll be able to make informed decisions.”