Credit life insurance provides cover in the event of you having outstanding debt when you die. It usually also pays out if you are disabled or retrenched. Globally, it is by far the most common form of long-term insurance by number of policies sold, although it can be a short-term insurance product, too. And although the premiums are usually low, profit margins are high, according to “Treating customers fairly: questions for the actuarial profession”, a 2014 paper by actuaries Rob Rusconi, Paul Truyens and the Actuarial Society’s Treating Customers Fairly Committee.

In South Africa, there has been widespread abuse of consumers who have this cover – from mis-selling to gross over-charging. The publication of regulations is imminent, but until these are in place, it’s a case of consumer beware.


1. A credit provider can insist you have it.

In terms of the National Credit Act (NCA), credit life cover is mandatory, and therefore a credit provider can insist that you have a credit life insurance policy for the duration of a credit agreement.

The credit provider may offer you this insurance, but you have the right to obtain cover elsewhere or use an existing policy. For example, you may already have a life assurance policy that will pay off all your debts and provide financially for your dependants, if you were to die unexpectedly.

If you want to use an existing policy, the credit provider may insist that it is named a “loss payee” under the policy. This entitles it to receive part of the proceeds, up to the settlement value at the time of the insured event.

The credit provider may also insist on paying the premiums on your behalf and, in turn, billing you for them.


2. A credit provider cannot insist that you buy cover from a particular insurer.

If you have to take out a credit life policy, you can’t be made to buy it from a particular insurer, and the credit provider must make you aware of your right to choose your insurer. Because of conflicts of interest in this market, consumers are not always properly informed of this at the point of sale. According to the paper by Rusconi et al, credit providers frequently have a profit-sharing arrangement with an insurer, so there is a strong incentive for the credit provider’s salesperson to sell you a particular product.

It should also be disclosed to you if the credit provider receives any benefit, such as a commission, for selling you insurance, or arranging cover on your behalf.


3. The policy may exclude cover for pre-existing conditions and provide benefits for which you can’t claim.

If you have a health condition, such as a heart problem, find out if the policy will pay out if youdie as a result of such a condition.

Credit life cover is typically not underwritten, which means the insurer does not calculate your premiums based on your actual risk. However, typically cover for pre-existing conditions is excluded and at claims stage the insurer will check to see if your death or disability was from a pre-existing condition.

Credit life insurance sold by life assurers includes retrenchment cover as a supplementary benefit to disability or life cover, because, in terms of the Long Term Insurance Act, assurers may not offer retrenchment policies as stand-alone products. This means that if you’re self-employed or a pensioner, you may be sold a product that offers a benefit (retrenchment cover) that is of no use to you – and comes at a cost.

The National Credit Regulator considers this unlawful and late last year called on the National Consumer Tribunal to fine the JD Group for mis-selling. Last year, the Lewis Group refunded a total of R67.1 million to pensioners and self-employed customers for “mistakenly” selling them unemployment insurance.


4. The policy must cover your entire debt.

The NCA states that a credit life policy must cover the consumer’s “total liability in terms of the credit agreement”, and you cannot be required to maintain a policy in excess of your liability at any time.


5. Your premium won’t necessarily  decrease as your debt does.

Given that you can’t be required to maintain a policy in excess of your liability, you would expect your premium to reduce in line with your debt. But not all credit life policies work this way, and it is legal for an insurer to charge you a “level premium”, Anna Rosenberg, a senior policy adviser at the Association for Savings & Investment SA, says. A level premium remains the same throughout the duration of the contract, but the benefit payout covers the outstanding debt only.

“These are preferred [by the industry], because they are easier and more cost-effective to administer. Clients also find them easier to understand and often prefer to budget for a fixed premium. Where premiums adjust with the loan amounts, they are much higher in the early days of the loan,” she says.


6. You cannot be charged interest  on your premium.

The NCA does not allow the insurance premiums to be added to your debt and interest to be calculated on the total, Rosenberg says. This applies to credit shortfall insurance, also known as top-up cover, which is sold with vehicle finance, and homeowners insurance, which covers the structure of your home and is sold when you take out a home loan, as well as personal loans and credit agreements that cover retail goods.

“A credit life premium can be paid monthly or annually, together with the loan repayment, but may not attract interest charges.”


7. You are entitled to full  disclosure of all costs.

In terms of the NCA, a credit provider must disclose to you the “total cost of credit”, which includes credit insurance. Despite improvements in disclosure requirements, many consumers don’t even know that they have credit life insurance, let alone what it’s costing them, according to the paper published by Rusconi et al.

“A mystery shopping exercise reported in the National Treasury study suggests that many of the requirements of sales outlets that are intended to protect customers are not being observed, in particular, the disclosure of the full cost of credit, inclusive of initiation fees, administrative fees and credit life cover,” the report says.

You must be given a quotation detailing the cost of credit, including the cost of premiums for credit life insurance.


8. You can switch insurers at any time.

There is nothing stopping you from moving insurers, provided your new policy covers your total liability in terms of the credit agreement at the time you switch and the benefits under the new policy are the same as or better than those under the current policy.


9. You may be paying too much for your cover.

The overcharging of consumers with credit life is rife and the new regulations are likely to cap the cost of credit life at R4.50 per month per R1 000 of cover.

As an example of current price differences, a Personal Finance reader with credit life on a car loan is paying R137 a month. The balance on his loan is R64 000 and he has four years and four months left on his term. This week, Outsurance quoted him R87 a month for life cover on the debt.


10. Goverment regulation is your friend

When you buy credit life insurance sold by or though a credit provider that has granted you credit, understand that one law applies to the credit agreement in terms of the NCA – and another to the insurance product, which can be a long-term or a short-term insurance product. Irrespective of whether the product is governed by the Short Term Insurance Act or the Long Term Insurance Act, it can be sold only by an authorised financial services provider, and as such the Financial Advisory and Intermediary Services (FAIS) Act applies. This Act governs the rendering of financial advice.

Richard Rattue, the managing director of Compli-Serve, an independent provider of regulatory compliance management services to the financial services sector, says that where there has been a breach of the FAIS Act and you have suffered loss, you can complain to the Ombud for Financial Services Providers.

In terms of government’s Treating Customers Fairly regime, long-term and short-term insurers are required to act in your best interests and demonstrate that they are doing so. You can complain to either the Ombudsman for Short-term Insurance or the Ombudsman for Long-term Insurance, depending on the type of policy you have. They may refer your case to the FAIS ombud if your complaint has to do with advice. The insurance ombudsmen are more likely to deal with your complaint if it has to do with the repudiation of a claim (for details, see below).



• The Ombud for Financial Services Providers is Noluntu Bam.

Telephone: 012 470 9080

Fax: 012 348 3447

Email: [email protected]



• The Ombudsman for Long-term Insurance is Judge Ron McLaren.

ShareCall: 0860 662 837

Telephone: 021 657 5000

Fax: 021 674 0951

Email: [email protected]



• The Ombudsman for Short-term Insurance is Deanne Wood.

ShareCall: 0860 726 890

Telephone: 011 726 8900

Fax: 011 726 5501

Email: [email protected]