We are just two months away from the implementation of new credit life insurance regulations that are aimed at protecting your rights, as a consumer, but are you in a position to take advantage of them?
The National Credit Regulator says consumer credit reached R1.6 trillion at the end March, so it’s clear that the new regulations will affect millions of South Africans.
The final credit life insurance regulations were published in the Government Gazette on February 10 and are scheduled to come into force in August. Only credit agreements concluded on or after the commencement date will be affected by the new regulations.
From August, the maximum amount that companies can charge consumers for credit life cover will be R4.50 a month on each R1 000 borrowed. For example, if you open a R10 000 furniture account, you can be charged a maximum of R45 a month for cover, but the limit will apply only to new accounts.
Sasha Knott, the chief executive of credit life insurance company Switch2, says that, when they take on credit, too few consumers realise they are also paying for expensive insurance.
“Consumers should not be overpaying for their credit life insurance, but many are also unaware they can switch their accounts when another policy offers them a better rate for the same level of protection, and they cannot be penalised for making that choice,” Knott says.
According to the National Credit Act, credit life insurance includes “cover that is payable in the event of a consumer’s death, disability, terminal illness, unemployment or other insurable risks that are likely to impair the consumer’s ability to earn an income or meet the obligations under a credit agreement”.
Credit life can be issued under either a short-term or a long-term insurance policy.
In terms of the Long Term Insurance Act, credit life insurance is classified as a long-term policy by virtue of its paying out upon a life or disability event.
According to research by Finmark Trust, there are about 5 450 credit providers in the country, holding over 36 million accounts.
Banks dominate the consumer credit market, with a market share of 80%. Retailers’ share of total credit granted in 2013 was 3.5%, while non-bank financiers’ share was 5.8%.
Knott says many retailers make it a requirement that consumers buy the retailers’ credit life insurance product as a condition for receiving their in-house magazines. She says consumers should be entitled to receive these publications regardless of where the credit life insurance is held, because the magazine is linked to the store and not to the insurance product.
The Credit Ombud has the following advice about credit insurance:
• Do not buy an insurance product that you do not fully understand.
• The salesperson is by law obliged to tell you that you are not obliged to take out credit insurance sold by the credit provider; you are entitled to shop around for credit life insurance.
• If you do not want to take out credit life cover, because you already have sufficient insurance to cover the debt in the event of your death, disability or retrenchment, you will have to provide proof of this when you enter into the credit agreement.
• The salesperson must disclose all the commissions and fees to you upfront when you buy cover.
• You should be given a copy of the policy document or schedule, which sets out the benefits. You can ask for a copy of the insurance schedule before you decide whether or not to take up the insurance offer.
• Read the fine print of a loan agreement to determine whether credit life insurance is required or included, and if so, what exactly it covers.
• Credit insurance cover will lapse if the account is in default.
• Ensure that your family knows about the credit life cover you have taken out, so that, in the event of your death, they can submit a claim timeously.