It’s an essential insurance product in challenging economic times but consumers should be aware that not all policies are the same, and that some cost a lot more than others.
South Africa’s economy is struggling, and every week the media features new rounds of retrenchments across different industries. In the first half of this year alone, a litany of major corporate names announced significant job cuts, including Standard Bank, Absa, Group Five, Dunkin Doughnuts, PPC Cement, Tiso Blackstar and Tongaat Hulett.
It’s a worrying time, and a main concern among many people is what to do about their loan payments should they be let go. Our advice to anyone who has borrowed money or is using credit, is to immediately check the details of their contract to establish whether they have a Credit Life Insurance policy in place or not.
As previously stated, Credit Life Insurance covers borrowers against their debt in the case of retrenchment, disability or death. This type of insurance is often, but not always, legally required for certain types of debt and is generally provided by the same financial institution offering the loan.
If you don't have a policy in place to cover your debt, getting one may be in your best interests during these trying times.
Retrenchment can cripple a family's finances, even when debt isn't involved. The negative impact is compounded when you start defaulting on loan repayments.
Even with credit life insurance cover in place, however, there are still important steps consumers should take to ensure they minimise their financial risk and monthly running costs. The most important is to ensure that they are spending as little as possible to maintain comprehensive cover on their debt.
Credit life insurance policy premiums are often bundled into the loan repayment debit order, and are often not properly explained to consumers. Sometimes consumers assume that they have no choice but to take out the lender's credit life insurance policy. This is not true, and often the assumption actually ends up costing them a lot of money every month. Worse yet, because they never understood it, they end up not claiming when the need arises; as is the case for many South Africans right now.
The previously low claims ratio of less than 20percent in the credit life insurance category is indicative not only of the low claim incident rate but also, and most importantly, of the lack of awareness that characterises this type of insurance. Many South Africans who need to claim don't, because they don't know they have this insurance to begin with.
Our message to South Africans is simple. Your debts can and should be covered against retrenchment and, in some cases, already are. Getting this right isn't expensive or complicated, even though the benefits are enormous.
If you find yourself in the unfortunate situation of being retrenched and you have a personal loan, go through your loan agreement and contact your bank. You most likely have credit life insurance that you can claim on during this difficult time.
Nkazi Sokhulu is a co-founder and chief executive at Credit Life Insurance brand, Yalu.