How credit insurance can cover your debt

If you are being retrenched or forced to take unpaid leave due to the Covid-19 coronavirus lockdown, you may be able to claim from your credit insurance policy.

Many people, especially those with short-term debt and store cards, may have credit insurance without even being aware of it.

This insurance covers your debt repayments if you are retrenched or experience a loss of income, and if you are disabled or die.

Some credit insurance policies have a “loss of income” provision, which comes into effect if your employer has forced you to take unpaid leave or is unable to pay you due to the lockdown.

These policies also cover you if you contract the virus and are unable to work.

Under the loss of income and retrenchment provisions, your debt repayments could be covered for up to 12 months, or until you earn an income again – whichever comes first.

Unfortunately, many people opted out of credit insurance, especially when it came to their mortgages or car finance.

Lee Bromfield of FNB Life says that only about 25% of their debtor’s book has credit insurance.

However, lenders focusing on short-term loans, including African Bank, Capitec and Bayport, tend to have a higher percentage of credit insurance policies, as this is often compulsory insurance when taking out a loan.

Credit providers will have their own specific cover, so you need to speak to your credit provider for details.

In some cases, the loss of income provision would only apply to loans or insurance taken out after August 2017, which is when new regulations were issued by government requiring credit insurance to provide for loss of income protection.

However, Nedbank and Standard Bank have announced that they would extend the cover retrospectively to those who took out the cover prior to 2017 in certain cases. African Bank’s cover also covers loans taken out before 2017.

Also be aware that a self-employed person may not have the loss of income protection unless they specified that they were employed and then paid the appropriate premium.

Nkazi Sokhulu, the CEO of credit insurance provider Yalu, says: “Generally, credit life insurance policies don’t cover retrenchment for self-employed customers because, from an insurance point of view, businesses can fail for a number of reasons that are difficult to quantify.

"However, if a customer had qualified for such cover before switching to Yalu, the Yalu Credit Life Insurance Plan would pay out that valid claim.”

It is also important to make your claim before you miss a payment as the premium is usually linked to your credit instalment.

However, some credit insurance policies allow for some leeway. Sokhulu says the Yalu Credit Life Insurance Plan allows for up to two months of missed payments.

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“We do, however, still need to debit you for the missed months by the third consecutive month.

"This means that, in the third month, we will debit you for three months of your premium. If we can’t debit you then, unfortunately, your policy would lapse. This means you will no longer have cover,” says Sokhulu.

As not all credit insurance is equal, it is important to check with your credit provider regarding what your insurance does and does not cover. Over the past week, most banks have extended their terms and conditions, so it is worth following up to see if you qualify now.

Basani Maluleke, the CEO of African Bank, says the bank’s policies pay the full credit insurance when a customer is put on short time and has an income reduction of more than 20%, as well as if they are put on unpaid leave.

“African Bank can cover their monthly payments for up to 12 months through their credit life insurance policies. Submitting the appropriate information and required documentation is essential to access these benefits,” says Maluleke.

“It is important to note that any credit card transactions made after the date of an insurable event are not covered and confirms that, if a claim is granted, you will not be able to use your credit card facility during the period that your instalments will be covered by insurance.”

Bayport’s credit insurance also covers short time and compulsory unpaid leave for up to six consecutive months per benefit, settling a client’s monthly instalment for every month that a client is affected.

The cover also applies to clients who have been hospitalised for more than three consecutive days, paying one monthly instalment in such a circumstance.

Capitec confirmed that, under its agreement with Guardrisk, the cover pays debt repayments in full in the case of unpaid leave, but that, in the case of a reduced income, the debt repayment will be covered in line with the reduction in income.

For example, if you only receive 40% of the income the bank took into account when issuing the loan, then 60% of your instalment is covered by the insurance.

None of the big four banks provides cover if you are still receiving an income, even if it is reduced – you would have to have lose a full calendar month of income to claim.

FNB’s credit insurance includes cover for people who may rely on commission and are unable to service clients.

It also covers contract workers, such as a contract teacher who cannot attend classes because of the lockdown.

FNB says that the cover would not include a self-employed person who has had to close their business due to the lockdown, unless the customer declared themselves as permanently employed at the time of taking out the cover and has been paying the premium for the benefit.

Dushen Naidoo, managing executive: insurance group at Absa, says the bank has reviewed its credit life products’ retrenchment benefits to provide more comprehensive cover.

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“Retrenchment benefits under credit life policies will pay the minimum instalment on customers’ credit agreements for three months if they are unable to earn an income.

This is applicable to all credit life claims that occur between April 1 and June 30.

“Normal terms and conditions will apply outside of the relief measures implemented,” he says.

This means that, during the three-month special relief period, the bank will cover temporary loss of income, for example, in the case of unpaid leave, provided that it receives the supporting evidence.

Nedbank confirmed that mandatory credit life on unsecured loans will cover the payment of unsecured loans for a period of 12 months, the outstanding term of your loan, or until you are able to earn an income, whichever comes first.

“For all clients where the loan commenced after August 1 2017, and who selected the insurance cover, the insurance policy provides a benefit for both unemployment or not being able to earn an income.

Nedbank Insurance has also extended this benefit to those clients whose insurance policy commenced before August 1 2017, recognising the importance of assisting all South Africans during this trying time.”

Nedbank has said that it takes time to process the claims.

If a client is unable to make their next debt repayment, it recommends that the immediate payment holiday first be implemented, affording enough time to collect the necessary documentation to process the insurance claim.

All valid claims will be paid directly into your unsecured loan account.

A statement from Capitec reads: “We are assisting our clients in every way possible. Capitec is offering clients who are impacted financially by the Covid-19 disruption a variety of convenient cash-flow relief measures.

This may include payment breaks or credit insurance to cover instalments.

Our system allows for flexibility through the rescheduling of loans, giving the client time to handle their financial setback.

Clients qualifying for benefits on their credit insurance policies are also provided with immediate cash flow support while their claims are finalised.”

The best way to check whether or not you have credit insurance is to check your bank statements to see if you have been paying premiums. In the case of store cards, this is often described as “balance protection”.

Standard Bank confirmed that if the loan granted by Standard Bank required compulsory comprehensive credit life insurance cover, and the loan was granted after August 9 2017, its comprehensive credit life insurance product would cover installments for up to 12 months in the event of you becoming unable to earn any income.

Standard Bank lending products that require comprehensive compulsory credit life insurance include all personal term loans and home loans to customers who have a combined income of less than R25 000. 

As part of its Covid-19 relief package, for those customers who have received the applicable housing loans and personal term loans prior to August 9 2017, Standard Bank would provide discretionary relief in respect of such customer's credit agreement installments for up to three months if a customer is unable to earn any income.

This discretionary relief will be available in the period between April 2020 and June 2020. These installment relief payments fall outside the credit life insurance policies.

Where a customer has chosen to purchase a voluntary Standard Bank credit life insurance policy linked to other lending products, they should review their policy terms to understand the events that they are covered for. Standard Bank urges customers to apply for their qualifying credit protection relief as soon as possible.

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