By African Unity Life
On 10 August 2017, a new set of credit life insurance regulations came into effect. These regulations are widely seen as a positive measure taken to protect consumers from exploitation by credit providers.
Credit life insurance is often added to finance agreements when consumers apply for credit, so that the credit provider is certain it will be repaid in the case of a client’s disability, unemployment or death. Up until the new regulations came into effect, the National Credit Act strictly regulated only credit interest and fees, and not bundled credit life insurance products. This gave credit providers the opportunity to overcharge and take advantage of consumers who were relying on credit.
Previously, people were being provided with credit life insurance that was not appropriate for them or their needs. And some credit providers were charging exorbitant fees or premiums for this insurance.
Fortunately, these practices are no longer allowed under the new regulations.
Monthly credit life insurance for all credit (excluding mortgages) is now limited to R4.50 for every R1 000 owed under the new regulations. In a standard mortgage agreement, for every R1 000 owed, there is a R2 limit on credit life insurance.
Under the new regulations, while a credit provider can insist that a consumer take out credit life insurance, they are not allowed to specify the policy. It’s also required that this insurance covers permanent disability, death and, depending on the specific case, unemployment and disability.
Consumers can now use a policy which is already active to cover any new credit and, generally, new life insurance policies will be more affordable. This means that the consumer is now given more choice and control over their finances. However, the regulations will not apply to policies which were signed before 10 August 2017.
Companies with business models that rely on charging higher premiums will likely suffer under these regulations and may have to discontinue selling credit life insurance if the cost structure of their business won’t allow for it any longer.
Consumers could be negatively affected if they need the cover and aren’t made aware that alternative providers are able to assist them.
Under the new credit life insurance policies, the “Treat Customers Fairly (TCF)” principles will be supported and South African consumers will likely be protected from unethical practices. This is important, as many customers are vulnerable when taking out loans and may not intend to enter into insurance agreements.
African Unity Life (AUL) underwrites life insurance and provides intermediaries with quotations for underwriting. What this means is that, even though AUL has always firmly believed in the principles of TFC, we were not always able to ensure that intermediaries sold the credit life insurance policies at the fair premium that AUL quoted. The new regulations aim to stop this abuse from happening.
*A version of this article was originally published on You’ve Earned It.