Decoding Insurance: What is Credit Life?

Cebisa Mfenyana from Metropolitan.

The sheer number of insurance products on the market can be confusing and leave you wondering what exactly some of the products are about and whether you actually need them. One of these lesser-known insurance products is that of credit life. Metropolitan’s Cebisa Mfenyana talks through the ins and outs of credit life – what it is, if and when you need it, and what you should be aware of.

What is credit life?

“Credit life, simply put, is insurance for your credit,” says Mfenyana. “It is the insurance you pay on a loan – whether it be a loan for a car, a house or any other personal loan.”

Mfenyana points out that the premium amount of your credit life policy decreases proportionally in relation to the balance of the loan that you are paying off. “It is set up so that the loan will be paid off in the event of the policyholder’s death. In essence, credit life exists to protect your dependants, the person or institution that provided the loan, and yourself.”

Protecting your dependants: Losing a loved one is difficult enough – this grief can be exacerbated if the deceased has left behind excessive debt in the form of a home loan, for example. If no credit life policy has been taken out, the burden of paying off the debt will be left with the policyholder’s dependants.

Protecting the lender: Credit life is often required upfront by the person or institution from whom you are obtaining a loan. This ensures that in the event of a policyholder dying, the outstanding capital owed on a debt, whether short or long term, can be paid to the person or institution who provided the loan.

Protecting yourself: Credit life insurance may also cover you, as the policyholder, in the event of you becoming disabled and in some cases retrenched as this would, in many cases, leave you unable to pay off your debts.

What should you be aware of with credit life?

One of the main things to be aware of with credit life, says Mfenyana, is that it is your responsibility to ensure that once your debt has been paid, your credit life is cancelled.

“Once you have settled any outstanding debt for which you had credit life, the onus is on you to make sure that you cancel your policy with your credit institution. We often find that people are still paying their credit life policy long after the debt has been settled and the debit order keeps on rolling month after month.” Mfenyana points out that while it might be a small amount (which is why it is also easy to miss), over time this can accumulate. “Keeping the cancellation of your credit life in the top of your mind is especially important at this time of year when many people are considering using their end-of-year bonuses to pay off their debts in lump sums.”

Something else to bear in mind is that credit life should not be mistaken for normal life insurance. “Credit life is very specific and if you do not read the fine print, you and your dependants might be in for a nasty shock further down the line if you are not sure what you are actually covered for. Credit life is purely credit insurance.”

There are also cases where it might not be necessary for you to take out credit life with a loan, explains Mfenyana. “You might already have sufficient insurance to cover the debt in the event of your death or disability, in which case credit life would just be an unnecessary expense.”

If you are unsure about any of these matters, speak to a registered financial services provider.