Insurance is a grudge purchase when life is going according to plan, but that resentment quickly turns to gratitude when bad things happen — to your car, your house, your income or your health.
And upon your death, those policies will be a godsend for your loved ones.
Credit life insurance is specifically designed to cover your debt if you aren’t able to pay it back due to disability, retrenchment or death. It’s legally compulsory on personal loans, but not so in the case of car and home loans.
Since 2017 regulations have capped the amount credit providers can charge monthly for credit life insurance — R4.50 for each R1,000 owed on all credit agreements except home loans, where the maximum is R2.50 per R1,000.
In the past year or two I’ve been approached by quite a few people who’ve been retrenched, did not have credit life insurance on their loans and demanded to know why their credit providers did not insist they take it.
The daughter of a man in his sixties who bought a car in 2019, financed by Absa, and has since been retrenched, was one of them.
“We contacted Absa to see if we had any credit insurance on this loan, but they said we don’t have anything,” she said. “How do they give clients such a huge loan without credit life insurance?”
Charl Potgieter, head of sales at Absa Vehicle and Asset Finance (VAF), said should a customer apply for financing through a dealership, “they would then be advised about relevant insurance products based on an analysis of their needs, conducted by the dealer.
“In this specific case, that process was followed.”
He also opted out of receiving any sales and marketing communications, Potgieter said, “so we honoured this request and made no direct contact with the customer offering any further value-added products with his vehicle finance”.
I asked what percentage of Absa’s VAF clients had credit life cover on their loans, but was told the bank is “not able” to discuss that, aka not willing. Pity.
Nedbank does indeed base its credit life premium on the original loan amount and it remains the same despite the balance — and therefore the amount they’d pay out — reducing steadily.
Last week a consumer raised an aspect of credit life insurance which I’d not contemplated.
“John from Tableview” said when he took out his home loan with Nedbank about a decade ago, the loan amount was R500,000. When it got to R100 000 he noted the premium for credit life insurance for the year — almost R7,000 — and wondered why it was still so high.
“When I asked the bank I was told the premium was based on R500,000, even though, should I die, they will only cover the balance of R100,000. Surely it can’t be right for the premium to still be based on the original amount?” he asked.
Nedbank does indeed base its credit life premium on the original loan amount and it remains the same despite the balance — and therefore the amount they’d pay out — reducing steadily.
The bank told me: “At Nedbank Insurance we have two main products, BondAbility and LPA (Loan Protection Assurance).
“For both products neither the insured cover nor the premium decrease with the balance of the mortgage bond.
“Updated versions of products do get released from time to time, terms and conditions as well as benefits may change. Clients’ claims will always be assessed based on the version that they bought.”
But clients may request their cover to be reduced. Interesting! John said he was never made aware of that and one has to wonder how many others are in the same boat.
So I asked: “If my original home loan was R1m and a claim is lodged on my death, by which time I’ve paid it down to R200,000, what becomes of the R800,000 balance?”
“It is paid out to the beneficiary of the deceased estate through the executor process,” Nedbank said.
That was news to John.
“The bank staffer I queried the premium with didn’t mention that and it’s not disclosed in any of the documentation I received about this policy,” he said.
It’s important to know that you are not obliged to take out credit life cover with the bank financing your home, car or personal loan, and you can switch policies at any time.
As his sole intention was to have his outstanding home loan amount settled by the bank on his death, John would have opted to pay premiums which reduced along with the loan balance.
And I’m sure he’s not alone.
Naturally, I wanted to find out what the other banks do in this regard.
Capitec Bank bases its credit life premiums on home loans on the diminishing balance. So the premiums steadily go down along with the balance amount.
Standard Bank, FNB and African Bank said the same.
Absa does what Nedbank does, but offers a traditional life cover policy to home loan customers — the Absa Home Protector Policy — instead of a credit life policy.
“This policy works like most life cover policies, where you are covered for a set value and pay the applicable premium. At claims stage, the sum assured will be used to first settle the mortgage bond, and should the cover amount be more than the outstanding bond, the difference will be payable to the beneficiaries. We encourage our customers to contact us should they wish to query their policy or require further information.”
And perhaps they should, if they’d prefer to cover their home loan only and thus pay a far lower premium over time.
It’s important to know you are not obliged to take out credit life cover with the bank financing your home, car or personal loan, and you can switch policies at any time. As with everything else, it pays to shop around, but be sure to compare the terms and conditions along with the premium.
• GET IN TOUCH: You can contact Wendy Knowler for advice with your consumer issues via e-mail: consumer@knowler.co.za or on Twitter: @wendyknowler.
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