The hidden benefits of credit life insurance you might be paying for

If you’ve ever taken out a loan, signed up for store credit, or financed a car or cell phone, chances are you’re already paying for a little-known but potentially life-saving insurance policy, without even realising it. 

It’s called Credit Life Insurance, and while it’s meant to offer a financial safety net during life’s toughest moments, most South Africans remain unaware of its existence until it’s too late.

What is credit life insurance?

Credit Life Insurance is a type of insurance policy that covers your debt obligations in the event of death, disability, retrenchment, or critical illness. Simply put, if you lose your job or become unable to earn an income due to illness or injury, this insurance is supposed to step in and cover your monthly repayments, at least for a limited period. Credit Life Insurance protects your ability to repay credit when the unexpected happens, acting as a buffer between personal crisis and financial disaster.

Credit Life is built into millions of credit agreements, and quietly deducted month after month. Yet we constantly see people facing retrenchment or disability who have no idea this cover exists. They miss payments, spiral into debt, and only seek help when it’s almost too late. If consumers understood and exercised their right to claim, it could mean the difference between staying afloat and financial ruin.

 Who has credit life insurance?

Many personal loans, credit cards, retail accounts, and vehicle finance agreements include Credit Life Insurance as either a mandatory or optional add-on. The monthly premium is usually added to your instalment without much notice. In fact, it’s often listed under vague descriptions like insurance fees or value-added products.

Consumers with credit can check their statements for insurance deductions or value-added products. If they need help understanding the policy wording, they can consult with a financial advisor. This way, they'll be prepared, for instance, if they get retrenched.

Data reveals unemployment remains stubbornly high, businesses are failing, and job security across sectors continues to decline. In this environment, Credit Life Insurance could be a critical safety net, yet far too many consumers remain in the dark about how it can protect them when they lose an income or fall ill.

 When can you claim?

Each Credit Life Insurance policy differs slightly, but most provide cover under four key scenarios.

In the event of death, the outstanding loan balance is typically settled in full, relieving surviving family members of the debt burden. If you become permanently disabled, the insurance can also pay off the full remaining balance of the loan, depending on the terms of the policy.

Temporary disability, such as being unable to work due to illness or injury, is usually covered for a fixed period, often between three and six months, during which the insurer pays your monthly instalments. In cases of retrenchment, some policies cover your repayments for up to 12 months, giving you time to find new employment without defaulting on your debt.

It’s crucial to act swiftly when a qualifying life event occurs. Delaying your claim can result in missed payments, damage to your credit score, or even disqualification from claiming altogether. The sooner you notify your credit provider, the better your chances of getting the financial support you’re entitled to.

Why aren’t people claiming?

The biggest reason people don’t claim on Credit Life Insurance is simple: they don’t know they have it.

We would like to see credit providers assist consumers when they miss a payment. Credit providers are quick to call and collect when a payment is missed. But from our experience, they won’t make consumers aware of the policy, and they rarely assist consumers with claims.

What should you do?

Start by reviewing your loan agreements and credit statements. Look out for any charges listed as insurance, credit protection, or value-added products; these could point to Credit Life Insurance premiums.

Once identified, request the full policy wording from your credit provider. This will explain exactly what’s covered, under what conditions, and how to submit a claim.

Make sure you understand the claims process. Don’t hesitate to ask your credit provider questions, or to consult a financial advisor or debt counsellor if anything is unclear.

Credit Life Insurance exists to offer peace of mind during uncertain times. But it only works if you know about it and act when it matters most. Don’t wait for a crisis to uncover the protection you’ve been paying for. Educate yourself now and ensure that you and your finances are covered when life throws the unexpected your way.

* Coetzee is the CEO at FinFix.

PERSONAL FINANCE