The recent news reports about household names in the credit industry being taken to task by the Regulator for “incorrectly selling credit insurance products” was maybe the first time you heard about credit life insurance, but if you have ever purchased anything on credit, chances are, you have also bought credit life insurance.
‘Credit life insurance’ is the insurance cover a consumer takes out in the event of their death, disability, terminal illness, unemployment, or other insurable risk that is likely to impair the consumer’s ability to earn an income or pay their monthly instalments under a credit agreement.
In recent months, several big name credit providers have come under fire for the incorrect sale of credit insurance to consumers. Investigations into consumer credit insurance have found that there are a number of issues that require intervention, e.g. the cost of credit is not properly disclosed and that consumer credit insurance cover does not meet the needs of the target market. For example, selling retrenchment and disability cover benefits to pensioners and self-employed consumers – cover that these individuals do not need nor can they claim for.
Another problem appears to be the fact that in some instances, consumers were unaware that they were paying for credit life insurance and therefore aren’t aware that in the event of their death, disability or retrenchment their credit life insurance cover will take effect. As a result, many families of consumers take on the burden of paying off these debts, or consumers simply default and then they are locked into a debt collection cycle and they never claim against the insurance cover taken out at the time of entering into the credit agreement.
“Claims on credit insurance policies are significantly low, which suggests that few people are mindful that they have credit life insurance or how to claim” says Nicky Lala Mohan, the Credit Ombud.
The Credit Ombud recently dealt with *Mr. Nkosi who approached our offices for assistance in understanding the balance outstanding on his statement of account as he felt that despite making payment every month the balance was not decreasing. Whilst investigating the complaint we noticed that consumer made a payment arrangement to decrease his monthly payments a few years ago. This arrangement was not sufficient to cover the interest which accrued on the account. Mr. Nkosi disclosed that he made a payment arrangement due to him suffering an illness which resulted in him becoming disabled. He was unaware that he had credit life cover. We assisted him by submitting the necessary documentation for a claim and it was paid out and his account settled in full.
The selling of products such as retrenchment and disability benefits for individuals that are self-employed or pensioners have come under scrutiny as the consumers are unable to claim these benefits, but they were required to take out the cover as a condition of the credit agreement. Credit providers that are found to be guilty of this could be ordered to refund the consumers affected as well as pay a fine.
Lala Mohan advises “where, for example, the policy attached to your credit agreement states that the credit life insurance excludes self-employed individuals or pensioners, and if you are self-employed or a pensioner, the policy would not benefit you. You should write to the credit provider and ask it to cancel the credit life insurance and refund any premiums paid, because the policy is inappropriate for you”.
Another example dealt with by the Credit Ombud’s Office recently related to a complaint regarding retrenchment insurance. They were approached by *Mr Sithole for assistance in respect of a claim submitted in terms of an Account Protection Insurance on a retail clothing account. The claim related to retrenchment cover on the account. Mr Sithole advised that his claim was rejected due to the late submission of his Letter of Retrenchment. He explained that his employer had neglected to furnish him with the requisite letter confirming his retrenchment within the stipulated period of 180 days. We intervened and the credit provider agreed that the consumer may submit the claim documents afresh to the insurance company and in turn, the credit provider re-submitted the claim to the insurance company. The claim was approved on the basis that the policy had been active for over 14 years. Mr. Sithole’s outstanding balance was settled.
“Our office has seen many complaints from consumers relating to similar credit insurance matters and more often than not, the consumers are not aware of the correct process to follow to submit a claim, or sometimes they are not even aware of the existence of the cover despite paying the premiums for years. In the case of retrenchment, consumers must always ensure that they obtain a “Retrenchment Letter” from the employer before they leave the organisation, and to then submit that to all their credit providers without delay.” says Lala Mohan.
The Credit Ombud, offers consumers the following advice regarding credit insurance:
- Do not purchase any insurance product that you do not fully understand.
- In terms of legislation, the salesperson is obliged to tell you that it is not obligatory to take out credit insurance sold by the credit provider and you can shop around for your own credit life insurance.
- It may be that you already have sufficient insurance to cover the debt in the event of your death, disability or retrenchment, but you will have to provide the necessary proof of same at the time of entering into the contract.
- If you buy credit life insurance when you sign a credit agreement, the salesperson must disclose all commissions and fees to you upfront.
- A copy of the policy document or schedule, which sets out the benefits offered, should always be given to you. You can request a copy of the insurance schedule before you decide whether or not to take up the insurance offer.
- Always read the fine print of any loan agreement to determine whether credit life insurance is required/included and what exactly it covers.
- It is important to note that the credit insurance cover, for death, disability or retrenchment etc., will no longer be in force if the account is in default.
- Ensure that your family are aware of your accounts as well as the credit life insurance that you pay for, as this will ensure that in the event of your death or disability, a claim can be submitted timeously.
Consumers are welcome to contact our offices with any of their consumer credit insurance queries. Consumers can also contact our office for free assistance on matters relating to listings on the credit bureau and all non-bank credit transactions, such as clothing store accounts, being handed over for debt collection or being garnisheed. We can be contacted on 0861 66 28 37, or via sms on 44786 or email firstname.lastname@example.org , or visit www.creditombud.org.za
* Names have been changed to protect the privacy of individuals.