What You Should Know About Credit Insurance – Who Can Pay Off Your Loans During This Crisis
- You can have credit insurance on your home loan, credit card, short-term loan, or car loan.
- Since 2017, these policies will cover your reimbursements if you lose your job or part of your salary.
- But they will not cover the self-employed.
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You may have insurance on your home loan, credit card, or short-term loan that could cover your repayments if you lost your income during the coronavirus crisis – without even knowing it.
Credit insurance would traditionally pay off your unpaid debts in the event of death or permanent disability.
But in 2017, new legislation was passed in South Africa which means that credit insurance must also cover your repayments – up to 12 months – if you are unemployed or unable to earn an income, and not necessarily for cause of illness.
Even if you only lose part of your salary during the coronavirus crisis, credit insurance can intervene to take care of your repayments.
Which products have credit insurance?
You can purchase credit insurance on most debt products, including card accounts, home loans, your overdraft, and vehicle financing. But it’s not always mandatory, so check to see if you have credit insurance in place.
If you took out an unsecured loan after August 1, 2017, it is guaranteed to come with the new credit insurance required by law. Credit insurance on these loans will cover payments if you lose your job or are unable to earn income, says Walter Marte, executive director of insurance and Nedbank.
In addition, credit insurance is mandatory for first-time home buyers in the affordable market, says Dushen Naidoo, general manager of insurance at Absa. Currently, the government defines the affordable market as households with a common monthly income of up to Rand 25,400, which would qualify them for a mortgage of Rand 900,000.
What will credit insurance cover?
Such credit insurance means that if you lose your job and all of your salary, payments will be made for twelve months, or for the remaining term of the loan, or until you are able to earn income again, depending on the shortest period.
If you only lose part of your salary, say 60%, credit insurance will only cover 60% of the due dates.
For Nedbank customers, if you are unable to earn an income or have suffered an income reduction of more than 20%, your request will be taken into account immediately, explains Marte. “Under normal circumstances, one would expect to have lost income for a full month before being entitled to a claim.”
Will you receive payment if you are self-employed?
Short answer: no.
None of the banks Business Insider South Africa spoke to offered credit insurance for loss of self-employed earnings.
“Self-employed workers are generally excluded, but these claims are considered on a case-by-case basis. We encourage clients to contact us in this regard,” explains Naidoo of Absa.
Who else will be excluded?
Some benefits will not cover your payments if you have already reached the normal retirement age of 65.
Additionally, credit insurance will not pay for all types of lost income. The loss of your income must be due to some unforeseen or unexpected event. An expiring contract, or a similar contingency foreseen, will not be eligible.
(Compiled by Helena Wasserman.)
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