Credit Life Insurance in South Africa: What It Covers and What It Costs

Many loan quotes include a line for insurance. It can protect you and your family, and it can also quietly add to what you pay.

Here is how credit life insurance works and what to ask before you accept it.

What is credit life insurance?

It is cover linked to a credit agreement. If an insured event happens, the insurer pays the outstanding balance, or part of it, to the lender. That protects your family from inheriting the debt.

The National Credit Regulator says the cover may not exceed what you still owe the credit provider.

What does credit life insurance usually cover?

Policies differ. Read the policy summary, not just the quote line.

Is credit life insurance compulsory?

The National Credit Act lets credit providers require insurance against certain risks, but the cost must be reasonable, and you should have a say about where the cover comes from.

If the quote says insurance is “optional”, you can decline. If it says “required”, ask why, and whether you can use cover you already have, such as a life policy. Ask in writing.

Ask for the policy terms and the premium in rand a month. If the lender cannot show them, you cannot judge whether it is worth it.

How does credit life insurance change the cost?

The premium is usually added to your monthly instalment. On a small short-term loan the amount can be modest but still matters. On a larger, longer loan it adds up.

Here is a hypothetical example. A premium of R40 a month on a 24-month loan adds R960 over the term. On a R5,000 loan, that is about 19% extra on top of the loan.

Always read the total repayment on the pre-agreement quote with insurance included.

What are the 6 questions to ask before accepting?

1. What exactly is covered, and what is excluded?
2. Are there waiting periods before cover starts?
3. What is the premium per month, and in total over the loan?
4. Who is the insurer, and is it licensed?
5. What happens if you settle early? Can you cancel the cover, and is part of the premium refunded?
6. How does a claim work? Who claims, and what documents are needed?

When is credit life insurance worth having?

• When someone depends on you, and the debt would fall on them.
• When your existing life cover would not clear this debt.
• When the premium is modest compared with the loan.

It is less useful if you already have enough cover, or if the loan is small and short.

What about retrenchment cover?

Some policies pay instalments for a period if you lose your job. Read the conditions carefully: waiting periods, exclusions for voluntary resignation and limits on how long it pays are common. See retrenchment for what else you may be owed.

What if you are pressured to take it?

You can complain to the lender, the Credit Ombud or the NCR. See your rights under the National Credit Act.

What does the premium really cost, and what does it pay?

Here is a hypothetical R5,000 loan repaid over six months, with credit life insurance at R40 a month.

The cover is linked to what you still owe, which falls each month, while the premium may stay the same. By month five, the cover is a fraction of the original amount, but you are still paying R40.

That is not a reason to refuse it, but it is a reason to ask how the premium is calculated and whether it falls as the balance falls.

Do you need it? A short decision guide

Work through these questions in order:

1. Does anyone depend on you, and would the debt fall on them? If not, the cover has less purpose.
2. Do you already have life cover that would clear this debt? If yes, ask whether the lender accepts it.
3. Is the premium small compared with the loan? If it is large, ask for a quote without it.
4. Is it compulsory? If the lender says so, ask in writing why, and whether you can use your own insurer.

If you answer “yes, no, small, optional”, the cover can be a sensible, cheap safety net. If you answer “no, yes, large, optional”, decline it.

How does a claim work for your family?

Your family will not know the details unless you tell them. Keep these in a safe place and let one trusted person know where they are:

• The loan agreement and the insurance policy summary.
• The lender’s name and contact details.
• The policy number, if there is one.

If you die, your family usually needs to contact the lender or insurer, provide a certified death certificate and an identity document, and complete a claim form. The lender or insurer tells them what else it needs.

Ask the lender to pause collection while the claim is assessed, and keep a record of every conversation.

What if insurance appeared on the quote and you did not ask for it?

Check the agreement before you sign. The premium must be shown on the quote and in the agreement, and the cover may not be more than what you owe.

If it was added without your agreement, ask the lender to remove it and give you a new quote.

If the lender refuses, or you have already signed, you can complain to the lender in writing and then to the Credit Ombud or the NCR. Keep the original quote, the agreement and your payment records. Our guide to credit agreements explains where to look.

What should you keep from a credit life insurance policy?

Keep the policy summary with your loan agreement. It shows what is covered, the premium and who to contact.

If you settle the loan early, ask in writing whether the cover ends and whether any part of the premium is refunded, and keep the reply. If you lose the paperwork, ask the lender for copies before you need them.

Frequently asked questions