Having credit life insurance is important to those who have loans that they are repaying and are worried about who will continue these repayments should they die or become permanently disabled. You may be wondering who, exactly, benefits from having credit life insurance so outlined below are the details of who benefits from this policy.
Your spouse or partner
Having credit life insurance from a reputable provider such as African Unity Life (AUL) means that upon your passing or disability, your loan debts are repaid. This allows your spouse to grieve and deal with the trauma without the stress of having to repay your debt.
If you do not have credit life insurance in place, your spouse or partner could become liable to repay mortgages, loans and car finance. While life insurance may cover this debt, it may not be enough which means that you will need to take out credit life insurance. Your spouse can then use any money received from your life insurance policy to cover funeral costs rather than having to repay debts.
Your children
Your children are highly vulnerable, especially when they lose a parent or a parent becomes unable to work. If you are the sole breadwinner or are a single parent, then having credit life insurance to repay your debts is crucial.
Should you die and there is not enough money to cover the debt, your debt will die with you, however, this may not always be the case. Your adult children may inherit your debts, which can add to their stress and grief. Their inheritance may also be used by banks to recoup the money they loaned you, which adds significant financial strain to an already difficult time. Having to repay debts that are not their own may also cause resentment in your children at a time when they are highly emotional.
What are the advantages and disadvantages?
Now that you are aware of who benefits from credit life insurance, it is time to examine the advantages and disadvantages of such cover, as outlined below.
The advantages
Protection
One of the biggest advantages of having credit life insurance is that you are protected if you die or become disabled. If you have a loan and you become disabled permanently before repaying it, you will experience significant financial and emotional problems, which is why having credit life insurance is so important. This is especially true if you are the sole breadwinner of the family.
Price of the cover is capped
There is a limit placed on how much you can be charged for credit life insurance depending on the type of credit agreement. Your insurance provider is not allowed to charge you more than R4.50 per R1 000 of cover. If you are charged a premium on a reducing-balance basis, which is what credit life insurance is, then your premium will start higher and decrease as your loan amount decreases.
You get what you pay for
Life insurance and credit life insurance are not legally allowed to charge you for retrenchment cover if you enter into the contract when unemployed. This is particularly useful for social-grant recipients or pensioners who have been charged for benefits which they could never claim. The self-employed will also find this useful as it will cut the monthly costs significantly, and not having hidden fees makes for more affordable living.
The disadvantages
Exclusions and limitations
Death and disability claims can be excluded if your death is caused by abusing alcohol, drugs or narcotics, wilful self-inflicted injury or suicide, or participation in hazardous activities such as mountain climbing, bungee jumping and speed racing. Your claims may also be excluded or rejected if you become unemployed within the first three months after the commencement of cover where the term of the credit is more than six months.
Pre-existing conditions may apply
Your credit life insurance policy may exclude or limit the cover of your death or disability if it is caused by a pre-existing medical condition that you were aware of in the twelve months prior to the commencement of the cover. This can be extremely difficult for those who may die or become disabled due to such a condition. Regulations do state that pre-existing conditions may only be excluded only if you are aware of the specific exclusion when you take out the policy.
Your own peace of mind
Credit life insurance will allow you to live your life peacefully, knowing that your debt is taken care of in the event of your death or permanent disablement. It is important to remember that this is not life insurance, and that the money will be used to recoup your debts and will not be paid to your family. You should have both credit life and normal life insurance in place in order for your family to be financially stable should you be unable to provide for them.
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