Credit Life Cover — The immoral of the story

In our modern society it is virtually impossible to lead a normal life without using some source of credit. The vast majority of South Africans are not able to finance major expenditures like purchasing a vehicle, or paying for a child’s university education out of their accumulated savings.

At this point the prospective consumer would normally approach an institution that provides credit, e.g. a bank for a home loan, or a finance company to enable the acquisition of a motor vehicle, or a microfinance agency for a short term loan.

The lending party would then do a number of means tests to see if the applicant qualifies for a loan. This would include credit checks, proof of employment, and so on.

After the credit provider has authorized the granting of a loan, they will lay down certain conditions. One of these conditions might be the existence of ‘credit life’ cover during the term of the repayment period.

There is a general misconception that lending institutions may not compel you to arrange cover. This is not correct.

A policy may be included as an obligatory part of the agreement. The lender may, however, take a policy at an institution of their choice or use an existing one to fulfil the requirement. They do not need to place the cover via the creditor’s preferred institution. This is of course on condition that the other policy has a similar or better benefit structure than the one the creditor offers.

The reason that the creditors want a policy in place is of course to protect their own interest. I.e. that in the event of certain occurrences the loan or repayment amount will still be assured of being paid to them. Fortunately, in this instance their interest overlaps with that of the client.

In general credit life insurance would cover a combination of the following benefits: Death, Disability, Temporary Disability, Dread Disease and Retrenchment. This would then remove the financial obligations form the assured and family at time of such a claim.

Insurance Busters is part of the IDM group, and is committed to helping clients towards their financial independence. As part of the debt review process we investigate the credit life policies and rates of the different providers.

Alarmingly there seems to be no correlation between the premium paid, and the quality of the product in place.

Credit Life Manager, André Goethals, states that it often seems “that the more expensive a policy is, the worse off the client is regarding benefits." He said that some clients were paying up to 4 times more that the rate Insurers Busters offered.

On investigation it was then found that the only benefits were death and disability cover. Furthermore it was of a limited scope, only paying a fraction of the outstanding liability.

Unfortunately a number of Institutions have discovered that they can use insurance as a cash cow. Instead of using the credit life as a legitimate asset protection instrument, they further burden the already overtaxed client with an overpriced product. Some of the rates are so onerous that in effect the supplier is increasing the interest rate by between 3 and 4 per cent. Because of this profitability a number of institutions have jumped on the bandwagon, selling a plethora of products.

Goethals says “We only offer the best products from recognized Insurers. Our offering has all the benefits mentioned at a very reasonable rate. We are a commercial company, but operate with social responsibility towards our clients.”

The IDM group is busy working through their client base to identify clients that may benefit from a review of their credit life cover, and will be contacting them to arrange replacement with a more apt alternative.

You can contact André Goethals via e-mail on Andreg@InsuranceBusters.co.za. To ensure that your situation is attended to promptly.