Not all credit insurance policies are created equal

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Unfortunately, no two credit insurance agreements are the same, and the type and level of cover available to customers differs from one credit product to another. This fact has created a lot of confusion among credit insurance holders, many of whom are becoming frustrated when trying to claim against their policies, only to find that they are not able to do so, or that their cover amount is not what they had hoped it would be. As is always the case with any financial product, when it comes to credit insurance, knowledge is power; so, whether you are thinking of claiming against this type of policy now, or you're considering taking out insurance on future credit agreements, it's worth arming yourself with the correct information first.

To start with, it's useful to understand that the name. Credit Insurance is a catch-all phrase that is used to describe any type of insurance cover on a credit arrangement. These arrangements can range from unsecured credit like a personal loan, credit card, overdraft, or store card, to secured credit like a home loan or vehicle finance agreement.

Credit life cover is not always compulsory

Some, but not all, credit facilities or loans will only be offered on condition that the person borrowing the money agrees to take out credit insurance. This is not required by law in South Africa, but many credit providers insist on it before they will provide you with the credit you want. This is known as mandatory or compulsory credit insurance. To protect consumers, the National Credit Regulator (NCR) implemented rules that govern mandatory credit insurance agreements. The two most common types of credit agreements, with compulsory credit life cover in South Africa, are for unsecured lending and affordable housing. The NCR specified the minimum benefits that a mandatory credit insurance policy must offer the policy holder, as well as the maximum premium that can be charged for those benefits.

Possibly the most relevant rule at this time of Covid-19 is that these mandatory policies must include an unemployment or unable to earn an Income benefit. This is the cover that pays some or all of your credit repayments, if you become unemployed or you are unable to earn an income for a period of time, through no fault or action of your own, which is the general case for many employed people during the Covid-19 lockdown period.

It's important to note that this benefit is not required by law to be included in optional credit insurance policies (where insurance is not a requirement in order to get the credit). In fact, the benefits offered by these optional cover policies come in all shapes and sizes. Some may be pre-packaged, while others could be at the choice of the policyholder. Most of these optional credit insurance policies include a death benefit as their basic building block, and then offer other cover options, such as permanent or temporary disability, retrenchment, critical illness, accidental death, hospitalisation and so on.

While some credit insurance providers do provide the option of including the unemployment or unable to earn an income benefit, this is not widespread. And where it is offered, it often results in much higher premiums than most people would want to pay.

Self-employed people may face added challenges

Unfortunately, even if you have mandatory credit insurance that includes an unemployment or unable to earn an income benefit, this cover is usually limited to people who are employed and lose their ability to earn an income. The regulations have a specific exclusion for self-employed people from being able to claim, if they are unable to earn an income. The regulations provided some reprieve in that self-employed people shouldn’t be paying a premium for benefits which they cannot claim on.

The problem lies in the difficulties in defining when a self-employed person can be said to be unable to earn an income. Without such a clear definition, insurers are unable to offer this form of cover to the self employed. This makes it very important that all self-employed individuals consider other short-term insurance contracts that provide insurance protection for business interruption.

Bringing it all together

The bottom line is that even though you may have credit insurance in place, this doesn't automatically qualify you to be able to claim from it to cover credit repayments during Covid-19. Your eligibility for this type of claim will depend on the type of credit you have, and/or the specific cover stipulated in your credit insurance contract. It is best to contact your credit insurance provider directly to discuss your options and eligibility to claim.