The National Credit Act regulates credit insurance. Credit Providers, when extending credit or lending to customers, may require customers to either take out credit life insurance which would then cover the debt due to the credit provider in certain situations, such as death or retrenchment, or to cede an existing policy to the Provider. Final Credit Life Insurance Regulations were published in February 2017 and came into effect 6 months later, on 9 August 2017.
These Regulations include the maximum prescribed cost of credit life insurance and provide that credit life insurance must provide for at least the settlement of [1] –
a) The outstanding balance of the consumer’s total obligations under the credit agreement in the event of the consumer’s death or permanent disability;
b) In the event of the consumer’s temporary disability, all the consumer’s obligations under the credit agreement that become due and payable for up to a maximum period of 12 months;
c) In the event of the consumer becoming unemployed or unable to earn an income, other than as a result of permanent or temporary disability, all the consumer’s obligations under the credit agreement that become due and payable for up to a maximum period of 12 months. If the consumer finds employment or is able to earn an income or the repayment period ends before the expiry of 12 months, then the shorter period would apply.
As clients are often unaware that they have credit life insurance in place, advisors should take this into consideration when updating a client’s financial plan or providing a client with advice during these uncertain times.
Click here to read the Final Credit Life Insurance Regulations, 2017.