Whatever debt you may have at your stage in life, it's important that you are covered if something goes wrong and you are unable to make the repayments, advise experts.
One way to do this is to ensure that you have credit life insurance, which is an insurance product that is taken out specifically to cover your debt when you buy goods on credit. It is meant to protect you, the consumer, if you are unable to make payments on your credit loans. For example, should you get retrenched before you've fully paid the amount you owe, or you become terminally ill or disabled, or you die, credit life insurance will pay the outstanding debt on your behalf.
Some people are unaware that they even have this cover, how much they are paying each month and what the benefits are.
We highlight five:
1. Credit life insurance is normally built into your credit agreement
Most credit agreements come with built-in credit life insurance, yet some people applying for credit or a loan don't realise that the insurance is included in their credit or finance agreement. This means that they end up signing for it but don't realise what benefits they are entitled to.
Before signing a financial agreement, take the time to read each line of a credit contract, said Sasha Knott, divisional CEO at Switch2 — a division of Clientèle. And don't be afraid to ask about how you are protected on any type of credit, be it retail store cards, credit cards, personal loans or vehicle finance.
2. What does it cover?
According to Knott, this type of insurance is in place to pay off a consumer's debt in the event of "death, disability, terminal illness, retrenchment, unemployment or other insurance risks that impair the consumer's ability to earn an income or meet their debt obligations."
Knott said that 80 percent of their claims are, in fact, in the case of a client's retrenchment.
"Everyone thinks this insurance is just in the case of death, but the vast majority of our claims are because of retrenchment," she said. "And in some cases, your debt can be paid off in full if you have good credit cover."
3. It could have a different name
Another confusing element for consumers is that this type of insurance could have a different name on every contract you've signed, for example, debt protection, credit cover, asset cover or credit life insurance. It's important to clarify this before signing on the dotted line.
4. Be careful of paying too much
You need to make sure you that you are not paying too much to insure your credit agreements.
"Credit life insurance is a really good product, but many people are paying too much. It's essentially the consumer's prerogative to choose their own credit life insurance that offers the most suitable benefits to them, at a competitive cost," Knott explained.
You have the right to shop around and choose one that's better suited to meet your needs and budget.
5. You have a choice to purchase the option or not
Another common misconception is that you must accept the contract that is in front of you. Credit life insurance could be a requirement when taking up most loans, but the credit provider cannot dictate that you purchase their option.
For example, you may already have long-term insurance policies in place to secure the debt, in that case, you wouldn't need to take out a credit life insurance policy.