A credit life/protection policy is insurance specifically designed to cover your debt if you can’t repay it due to disability, unemployment, or death. Therefore, if you cannot earn an income due to being retrenched, becoming unemployed, or due to illness, disability, or ultimately death, the amount you still owe or your instalments payable will be covered. Credit life/protection cover is regulated under the National Credit Act, and a credit provider may insist that you take out a credit life policy.
However, you are free to source such a policy with your chosen provider. Credit life policies do not require that one undergo medical underwriting, so they are more accessible than more traditional life cover policies. However, providers of such policies do employ exclusionary terms to manage the risk presented.
Whilst new regulations have, to some degree, limited the exclusions included in these policies, one must still ensure that they consider and familiarise themselves with the contents of their policy documents and ensure that they empower themselves by understanding what may be required to ensure a successful claim at a time when the benefits of the policy are needed the most.
Case Study: M v B When purchasing a new motor vehicle, the complainant and her husband approached the respondent looking to secure a credit life/protection policy to cover the vehicle’s instalments in the event of the husband’s death, disability, or retrenchment. The policy recommended was accepted, and the complainant and her husband believed that the husband was adequately covered as the vehicle instalments were being deducted from his salary. However, when the complainant’s husband was subsequently retrenched, the claim was rejected as the respondent noted that there was no cession in place, which was, according to the respondent, a material term of the policy. The complainant claimed that neither she nor her husband had been informed of this requirement, and as far as they were concerned, the cover was in place to ensure that, in the event of retrenchment, the vehicle’s instalments would be taken care of for a period of 12 months.
This Office directed the complaint to the respondent to respond to the complainant’s submission, and the respondent was requested to provide this Office with documentation in compliance with the General Code of Conduct for Authorised Financial Services Providers and Representatives (‘the Code’) to show that the respondent had complied with Section 7(1)(c)(vii), which requires that concise details of any special terms be provided to the complainant and her husband, and that they had been placed in a position to make an informed decision as required by Section 7(1)(a) of the Code.
In response to the complaint, the respondent confirmed that it had investigated the complaint and, whilst the complainant did not satisfy the strict requirements of the policy contract in respect of the cession, it was still prepared to make an offer without the admission of liability and without prejudice in the amount of R72,000.00 (seventy-two thousand rands) in full and final settlement.
The offer was presented to the complainant, and the offer was accepted.
Lessons Learnt:
- The Code provides that Financial Services Providers make full and frank disclosures of any material terms and that concise details of any special terms be provided so that you can make an informed decision. Even so, it is vital that, as a consumer of financial products, you empower yourself by ensuring that you research the product you are purchasing and familiarise yourself with the policy wording and any requirements.
- Whilst a credit life/protection policy may be a requirement when sourcing credit, you are free to source a policy from a provider of your choice if the policy meets certain requirements and provides the necessary cover to protect the outstanding credit.
- Many people do not even know that they have a credit life/protection policy, as the premiums are often included in the cost of credit. This is why it is so important that you carefully read your credit agreement and any supporting documentation. Knowing what you have and what is required from you is vital to ensure that the policy reacts as it should when you need it the most.