WhatsApp
Menu

What is credit life insurance, and how is it different from life cover?

By SortMyCover editorial team. Last reviewed . Fact-checked by SortMyCover editorial team on . See our editorial policy.

A couple going through papers at home
Short answer

Credit life insurance pays a debt, such as a bond, if the borrower dies or becomes permanently disabled, and pays instalments for a time after job loss. It pays the lender, not the family. The National Credit Act lets a borrower use a policy of their own choice instead. This is information, not advice.

Credit life insurance often comes up when a bond or loan is approved. This page explains what it is, what the law says about it, and how it differs from life cover, in general terms. It does not say whether any policy suits anyone.

What is credit life insurance?

It is cover linked to a debt. Under the Credit Life Insurance Regulations, it must pay the outstanding debt if the borrower dies or becomes permanently disabled, and pay instalments for up to 12 months if the borrower loses their job. Someone who is not employed cannot be sold retrenchment cover. On a home loan it is often called bond protection.

Is credit life compulsory for a home loan?

A lender can require cover for the debt. The National Credit Act also gives the borrower the right to turn down the policy the lender proposes and use a policy of their own choice instead. The lender must tell the borrower about this right.

What can credit life cost?

  • On a mortgage agreement, the cost is capped at R2 per R1,000 of the amount owed.
  • On other credit agreements, such as personal loans and credit facilities, it is capped at R4.50 per R1,000.

The caps come from the 2017 regulations, which apply to credit agreements from their start date onwards. The National Credit Regulator has been reviewing them, so the current rules are worth checking.

Credit life or life cover: what is the difference?

  • Who is paid. Credit life pays the lender, to settle or service the debt. Life cover pays the people or estate named in the policy.
  • How much. Credit life follows the debt, so the benefit shrinks as the bond is paid down. Life cover pays the amount set in the policy.
  • What it is for. Credit life protects one debt. Life cover can be used for whatever the family needs, which may include the bond.

Life cover, in plain words explains life cover, and disability cover and income protection explain the cover that pays when illness or injury stops work.

Questions to ask an adviser

  • Does an existing life policy meet the lender's requirements, and could it replace the lender's credit life?
  • What happens to the bond, and to the household's income, if the main earner cannot work?
  • Does a work benefit already pay anything towards the bond?

What happens before and after signing?

The FSCA's consumer guide says a person can take a policy away to read before signing, ask for the contract to be explained in plain language, and ask an adviser for proof of their qualifications and for full details of fees and commission.

After signing there is a cooling-off period. Under the Policyholder Protection Rules for long-term insurance, a new policy can be cancelled within 31 days of receiving the policy summary or the disclosure information, whichever comes later, as long as nothing has been claimed or paid and no insured event has happened. Premiums are refunded, less the cost of any cover already enjoyed.

Where does SortMyCover fit in?

SortMyCover does not sell cover, give advice or quote premiums. It books a 30-minute call with an adviser from an FSCA-authorised financial services provider, who can talk about cover for your situation. How to check an adviser shows how to look them up first, and what happens on a 30-minute call describes the call.

Sources

Related