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The Importance of Credit Insurance

Finance & Money

Posted on Wednesday, August 3, 2022

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Unexpected events can happen at any time, so it’s important to be prepared. Learn about how credit insurance could give you extra cover.

 

Insurance may not come to mind when you think of debt, but what happens if you can’t pay your debt due to unforeseen circumstances? Here’s how credit insurance works, when you should consider it and what it covers.

 

What is credit insurance?

 

Credit insurance is a policy that covers your debt repayments under certain circumstances. These may include anything that could impact your ability to earn an income, such as:

 

  • involuntary unemployment
  • death[1] [2] [3] 
  • permanent disability
  • salary or wage cut
  • illness

 

Credit insurance can be taken out for most kinds of debt, including long- and short-term loans, credit cards, home loans and vehicle finance. It’s mandatory insurance in many cases, so it may be automatically activated when you take on certain debts, particularly loans.

 

What does credit insurance cover?

 

Credit insurance covers whatever loss of income you have. This means if you lost 50% of your salary, you would be covered for that portion. Or if you’ve lost your ability to earn an income completely, credit insurance will cover the full amount of your repayments.

 

Depending on your cover, it should, according to credit regulations in South Africa, cover your repayments for up to 12 months or as many repayments as are left, whichever is shorter.

 

Usually, losing an income of more than 20% would make you eligible for assistance. Unfortunately, credit insurance doesn’t cover you if you’re self-employed.

 

Should you get credit insurance?

 

Since credit insurance is mandatory in most cases, you could have credit insurance without you knowing! If you have any kind of debt, check with your credit providers if you are covered. You’re allowed to choose your insurance plan, so if you’re covered, assess the offering and the provider to determine whether it suits your needs.

 

If you aren’t covered, you should consider getting this type of insurance, particularly if you owe large amounts of debt. To ensure you get the right cover for your needs when taking out credit insurance, here are some questions to ask:

 

  • What percentage of my debt will be covered in the event of loss of income?
  • Which kinds of debt will these insurance options cover?
  • What is the waiting period for the cover to kick in once a claim is made?
  • Can the insurance company or lender cancel my insurance at any point?

 

Good to know

 

It’s important to keep in mind that when you make a credit insurance claim, it won’t take effect immediately. The turnaround time would depend on the reason for your claim.

 

There are specific waiting periods for disabilities, death and other incidences, and they vary according to your plan.

 

Chat to your insurance provider to find out what the waiting periods are so you know when and how to make a claim.

 

Find more insurance-related tips in these blog articles: