When you apply for credit (whether a Personal Loan, Vehicle Finance or Home Loan), most creditors will want insurance that, should you die before the loan is settled, the outstanding balance will be paid. They may therefore require that, as a condition of them lending you the money, you also pay a monthly premium towards a Credit Life Insurance policy that covers the outstanding balance. This can cost you a significant amount. For example, if you borrow R20 000 to be repaid over 3 years at 25% interest per annum, your instalment will be around R800 per month. In total, you’ll end up paying back approximately R28 700. However, if that creditor includes monthly premiums of R200.00 for a Credit Life Insurance policy, you’ll end up paying a total of R35 900 over the three years (i.e. an extra 25%). While creditors are entitled to insist on this as a condition of the loan, there are a few ways to reduce this cost and maximise the benefit to you (rather than the creditor receiving all the benefits that you’re paying for).

(1) Be aware that you don’t have to take the Credit Life Insurance policy that the creditor is offering. Shopping around for a policy could reduce your premiums significantly (as much as 70%) ;

(2) Shop around for your credit. At the time of writing, at least one lending institution (Capitec Bank) was offering Credit Life Insurance at NO extra charge to their clients. That’s a 100% saving on insurance premiums. That’s an offer that’s hard to beat! However, be warned that the cover may be less comprehensive than that provided by other policies ;

(3) When considering policies, check on what they’re covering. Many of the policies offered by creditors only cover the outstanding balance if you die, whereas the policies offered by specialist insurers (such as ONE Insurance) cover additional eventualities such as disability, serious disease and even retrenchment.

(4) Remember that your outstanding balance is going to be decreasing every time you pay an instalment. Is the Credit Life insurance premium going to decrease as there’s less for the policy to cover, or are you going to be paying the same premium in the third year of your repayment (when the outstanding balance should be much lower) as you were when you had just taken out the loan and the full balance was outstanding?

(5) Finally, don’t disregard the convenience factor. If you have a number of credit agreements (i.e. different loans and accounts), specialist insurers will give you the same low rate to insure them all. It also means that, should you need to claim, it’s just one claim for all your accounts.

So, although creditors ARE legally entitled to insist on Credit Life Insurance, you (the client) don’t just have to accept what they’re offering. Be a smart credit shopper – get your credit at the most favourable terms you can.