Credit life insurance regulations prescribe the minimum benefits that must be offered to consumers. The regulations aim is to limit the cost of credit life insurance. Here are the difference regulations have made.
You decide to visit your local retailer and purchase a brand-new lounge suite on credit. This lounge suite is valued at R10 000, and after scanning through the terms and conditions you know that you will pay 25% interest along with your monthly instalments.
But you don’t notice the section about credit life insurance, which states that you will pay an additional fee each month.
As the SmartInsure consultants often experience, people often don’t know they’re paying for credit life insurance.
They don’t realise that if they default on their payments for reasons out of their control, such as retrenchment or the onset of a disability, credit life insurance will cover their payments.
While this is important to have, until recently many organisations took advantage of their clients’ ignorance and charged them exorbitant rates each month.
In the past, the retailer may have charged you R50 for every R1 000 owed. Based on the above figures, this means your credit life insurance would have been R500 in the first month alone.
However, thanks to amendments to the National Credit Act on 10 August 2017, organisations can no longer charge their clients whatever they please.
To prevent exploitation, the NCR capped credit life cover at R4.50 for every R1 000 owed – R45.50 less than what you would have paid in the above example.
However, credit life insurance can cost you even less: At SmartInsure, the going rate is R2.50 for every R1 000 owed, which amounts to just R25 in the first month.
With these rates, you will be able to pay R475 less each month, and that money can be used towards paying off the actual amount you still owe the retailer. The regulations are particularly pro-consumer.
This agrees with SmartInsure’s main sentiment, which is to protect consumers from being ripped off, and make sure they get the right deal for their circumstances.
But this only applies to new contracts after the regulations changed. If you bought your lounge suite before then, you could still be paying unnecessarily high fees.
Sometimes people approach SmartInsure because they are struggling with debt and, where possible, we are able replace their credit life insurance from before the regulations with more affordable options.
Credit life insurance can be interchanged if it offers the same cover.