If you have credit life insurance and the claim is valid, the insurer pays the outstanding balance to your credit provider and the debt is settled, so it does not fall on your estate. Without cover, the debt is a claim against your estate, and your executor must deal with it before your heirs receive their inheritance.
With credit life insurance
For credit life that a credit provider requires, the regulations set death cover at the settlement of the outstanding balance of your obligations under the credit agreement. The insurer pays the credit provider directly.
A claim is paid only if the conditions in the policy are met. Typically that means:
- The policy was in force and premiums were up to date.
- The death is not excluded, for example by a pre-existing condition you knew about in the 12 months before cover began, or by suicide.
- The claim was reported within the time the policy allows.
Ask whether the insured amount covers the whole balance, including any arrears, interest and fees. For optional cover, the policy sets the benefit.
Without credit life insurance
Your debts do not disappear. They are claims against your estate, and your executor must deal with them before heirs receive what is left.
- Secured debt, such as a bond or vehicle finance, is tied to the asset. The lender may require the asset to be sold to settle the debt.
- Unsecured debt, such as a personal loan or credit card, is paid from the remaining assets in the estate.
- If the estate cannot cover the debts, creditors may be paid only part of what they are owed, and heirs may inherit little or nothing. The shortfall is generally not passed on to your family.
Who else may be liable
- A co-borrower or joint account holder.
- A surety, which is someone who signed to guarantee the debt.
- A spouse married in community of property, where the joint estate may be affected. Speak to an attorney about your circumstances.
Family members who did not sign for the debt are generally not personally liable for it. If a creditor contacts them, they can refer the creditor to the executor.
What your family should do
- Find your credit agreements and any credit life policy documents. The insurer’s details are on the policy schedule.
- Tell the credit provider and the insurer about the death promptly, because claims have time limits.
- Have the death certificate and the claim forms ready.
- Ask the executor, who is appointed through the Master of the High Court, how the debts will be handled.
- Do not agree to pay the debt personally before getting advice.
Credit life is not ordinary life cover
Credit life pays your credit provider, not your family. Ordinary life cover pays the beneficiaries you choose. See what is credit life insurance?