Credit life insurance is cover linked to one loan or credit agreement. If an insured event happens, such as death or permanent disability, the insurer pays your credit provider to settle the outstanding balance. Other events, such as temporary disability or losing your job, may instead cover your repayments for a limited time.
How it works
Credit life insurance is tied to a single credit agreement, such as a personal loan, vehicle finance, a home loan (bond), a store account or a credit card. You pay a monthly premium, often added to your repayment. If an insured event happens and your claim is valid, the insurer pays the credit provider, not your family.
That is why it is called credit life: the cover exists to deal with a debt, and it generally follows the debt. As the balance you owe goes down, the amount insured should go down with it.
What it can cover
- Death: the policy settles the outstanding balance of your obligations under the agreement.
- Permanent disability: the policy settles the outstanding balance in the same way.
- Temporary disability: the policy pays the repayments that fall due while you cannot work, for a limited period.
- Unemployment or inability to earn an income: in certain circumstances, such as involuntary retrenchment, the policy pays your repayments for a limited period.
For credit life that a credit provider requires you to keep, the Credit Life Insurance Regulations set these as the minimum benefits. At the legal minimum, the temporary disability and unemployment benefits pay your repayments for up to 12 months, not the whole debt. Some insurers offer more, so read your policy. For the detail, see credit life and disability and credit life and retrenchment.
How it differs from ordinary life cover
| Feature | Credit life insurance | Ordinary life cover |
|---|---|---|
| Who is paid | Your credit provider | The beneficiaries you choose |
| What it pays | The balance on one debt, or its repayments for a limited time | A lump sum or income that you choose |
| How the amount changes | Generally follows the balance you owe | Stays as set unless you change it |
| Main purpose | Dealing with a specific debt | Supporting your family in general |
The two can work together. Credit life deals with the debt, and ordinary life cover can then be used for everything else your family needs.
What it does not do
- It does not pay out for every event. Policies have exclusions and, in some cases, waiting periods.
- It is not motor insurance, buildings insurance or shortfall cover. Each of those covers something different.
- It does not cover debts it is not linked to.
- An enquiry or application does not start cover. Check the insurer-issued policy and its effective date.
What to check before you agree
- Which events are covered, and whether each one settles the balance or only your repayments.
- Waiting periods, exclusions and any limits on the benefit.
- The premium, and whether it is worked out on your original balance or on what you owe from time to time. See how credit life insurance is calculated.
- Whether your credit provider requires the cover, and your right to use a policy of your own choice. See is credit life insurance compulsory?