By Sanette Viljoen
Do you have credit life insurance on your loan? Is it a good idea to claim from your credit life insurance as an alternative to the various debt-relief options currently being offered by the different banks as a result of the lockdown?
What are the implications of the debt-relief options or payment holidays?
Several banks have announced that they are prepared to grant their clients debt relief during the national lockdown instituted as a result of Covid-19. This could include the lowering of your monthly instalments or that you take a full payment holiday for a specific period.
If you are considering this option, it is important to make sure that you thoroughly check the terms and conditions of such an offer as interest on the debt will probably accrue, which will not necessarily be in your best financial interests.
It is recommended that you continue with your repayments if you can do it. However, if you cannot do this, you should first consider all your options before accepting debt relief.
What is credit life insurance?
Section 106 of the National Credit Act (Act 34 of 2005) (NCA) stipulates that a credit provider may ask the consumer to maintain credit life insurance for the duration of the term of a credit agreement or to take out insurance cover in terms of a bond agreement in respect of fixed property or insurance cover against damage to or loss of property.
This means that the insurer may compensate the credit provider (e.g. the bank) for a period of up to 12 months if the consumer cannot repay the debt due to:
- unemployment or inability to earn an income;
- permanent or temporary disability; or
This means, for instance, that if you as a consumer lose your job, the cover will have to pay your instalments for up to 12 months. Another example is that should you die or become permanently disabled, your cover must then pay your outstanding balance. There are, however, certain exclusions and limitations that apply to credit life insurance cover that have to be borne in mind.
An amendment to the NCA in the form of regulations that took effect on 10 August 2017 extended credit life cover to the loss of income while you are still employed, including if you are compelled to take unpaid leave, which has happened to so many people as a result of Covid-19.
Applicability to Covid-19 and the lockdown
The applicability of credit life insurance to you depends on the specific conditions of your insurance policy and the circumstances of your employment or business. Applicability will mostly apply to unemployment or loss of income of a business as a result of the countrywide lockdown.
It is therefore advisable to take legal advice before accepting an offer of a payment holiday to check that your insurance policy includes credit life insurance.
If you comply with the requirements of your credit life insurance, it would be advisable to use this option instead of debt relief, e.g. payment holidays where your outstanding balance with the credit provider accumulates.