Premiums for credit life cover taken out with a credit agreement may be included in your repayments.
The cost of credit life cover, however, has been regulated since August 2017 in a bid to protect vulnerable consumers.
The regulations include limits on the premiums that can be charged. It should not cost you more than R4.50 for every R1 000 of debt you have if you take out credit life cover on:
Credit life cover issued after August 2017 should not cost you more than R2 for every R1 000 on a home loan.
If your credit life cover policy settles your debt in full should you be retrenched or temporarily disabled, your insurer can charge an additional R1 per R1 000 of debt you have.
If you buy on credit while you are unemployed, you will not be covered for the risk of becoming unemployed or unable to earn an income. You must disclose this to the credit life insurer and make sure that you are charged less than the regulated amount for the cover.
If you are retired, your credit life cover will only cover your debt if you die. This is because you are assumed to no longer rely on employment for an income. In this case, your premium should not include the cost of disability and loss of income cover – it should be less than the regulated amounts.
If you are self-employed, your cover will not include unemployment and occupational disability, but there are a few insurers who include the risk of being unable to earn an income.
Reducing cover
Although the cover is for your decreasing debt, don’t expect your premium to always reduce in line with your debt. The regulations do not state that the premiums must reduce in line with the cover.
Many life insurers charge a level premium for credit life cover. This means that the premium remains the same throughout the duration of the contract, while the benefit pay out covers the outstanding debt only.
A level premium should start out cheaper than one that reduces in line with your debt, but it may be more expensive when you are closer to repaying the debt in full.
The National Credit Act prohibits a credit provider from insisting that you take out or maintain credit life cover that is unreasonable or has an unreasonable cost given the risk and what you still owe.
