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Credit life insurance – what it covers, why you need it and what you should be paying

07 June 2018Nkazi Sokhulu, Yalu
Nkazi Sokhulu, co-founder and CEO of Yalu.

Nkazi Sokhulu, co-founder and CEO of Yalu.

Despite the fact that credit life insurance provides invaluable protection to the policy holder in the event of them not being able to service their loan repayments due to death, disability or retrenchment, most people are unaware of even having this cover, how much they are paying each month, what the benefits are, or even how and where to claim. This is one scenario where ignorance is NOT bliss, and could be costing you a huge whack of money every year that you need not be spending.

Now that the penny has just dropped that you have a personal loan, it’s right about the point that you should rush off to scrutinise your loan agreements and get on top of exactly what it is you are paying for, how much and for what benefit.

“Credit life insurance provides the security that should you be unable to repay your loan due to death, disability or retrenchment, the credit life policy will take care of your debt to the bank. It's an invaluable cover that pays the total remaining balance of the loan in the event of death or permanent disability of the policyholder, or pays monthly loan Instalments in the event of temporary disability or retrenchment. It protects you and your loved ones from the enormous strain of having to settle a debt when life circumstances may place you in a position where you simply are unable to. Credit life insurance is much like having an umbrella on a sunny day. You probably won’t need it, but in a sudden turn of events in a heavy thunderstorm, you’ll be very grateful you have it,” explains Nkazi Sokhulu, co-founder and CEO of Yalu.

As a new digital insurer, Yalu makes credit life insurance smarter, faster, transparent and easier to access - applying can be done on the spot via an online process that takes less than five minutes, without needing to speak to a sales agent.

While the mechanics of credit life insurance are not new, it’s Yalu’s approach, transparency, ease of transacting and promise of financial relief and a cash back reward at the end of your loan, that sets it apart from all other offerings in the market, and that you should sit up and take notice of. The bottom line is that up until now, credit life insurance has been offered by most if not all loan providers as a mandatory requirement in securing a personal loan, at premium rates that are eye-wateringly and unfairly high, and without consumers being always made aware of the right to choose an offering from an alternative and more affordable provider. Yalu aims to change all of this.

Yalu’s credit life offering is differentiated by the following:

• The premium automatically reduces every month as the loan amount reduces. You only pay for the cover you need to settle your outstanding loan and not a cent more.
• The policy rewards you with 10% of premiums back at the end of the loan term if you have not claimed on the policy.
• Simplicity – the only policy in the market that can be purchased effortlessly online in under five minutes, removes the admin hassle of switching from an existing credit life insurance provider as Yalu does all the heavy lifting of cancelling the old policy on your behalf, and guarantees you coverage for all the benefits that your current insurer provides when switching to Yalu.
• Affordable and transparent; with clearly defined benefits and speedy claims processes.
• One policy covers all loan commitments - saving you more money on unnecessary admin fees and debit order costs.

Most of us will have a need for a personal loan at some stage of our lives, but that does not mean you have to settle for an overpriced credit life insurance product from your loan provider as a pre-requisite for the loan. Forcing a customer to purchase a particular insurance policy when taking out a loan is illegal in terms of the FAIS Act. It is not illegal for a bank to insist on you having credit life insurance as a condition of the loan, but it is illegal for the bank to push a particular product on you. You have the freedom of choice to shop around for an affordable product that meets your needs and budget.

When the new credit life insurance regulations came into force in August 2017, two key changes were introduced to better protect you. First was the capping of the Rand per thousand fee that says that insurers can only charge up to R4,50 per R1000 borrowed, and secondly the standardisation of benefit definitions and exclusions across all credit life insurance policies. The latter is significant in that it means that current credit providers can no longer refuse to accept alternative credit life policies on the basis of the benefits and definitions being different to their own.

“It’s also important to note that the new regulations and capping of fees only apply to new loans and not retrospectively. A quick review of your current loan agreements could prove to be a real eye-opener, with you paying as much as R15 or more per R1000, and which means you have been ripped off for years already. You should ideally be paying less than the current cap, and with Yalu, that monthly premium further reduces every single month as your loan amount reduces. You should not be overpaying for credit life insurance, but up until now you may have been entirely unaware that you can switch your policy in minutes for a better rate if you even knew you had one and get rewarded for it,” says Nkazi.

Quick Polls

QUESTION

Millennials make up 30% of the South African job market; these are your clients and future clients. Do you engage with them?

ANSWER

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Some engagement but by far the most difficult generation to engage with
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