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If you’ve bought big items like furniture on credit, chances are you may not realise that you have been paying a monthly insurance fee on top of your instalments.
This insurance is essentially to protect the store-owner in case you cannot make your repayments anymore, and up to now there has been no regulation as to how much you can be charged for these insurance fees.
The rules are changing
But there is good news - new regulations recently came into effect that will protect you from abusive practices by credit providers. This will help to prevent consumers from being exploited when they take out credit facilities.
Credit providers want to make sure you are able to repay the money you owe them in case of death, disability or unemployment. For this reason they have been adding credit life insurance to any financing agreement.
Credit interest and fees have always been very strictly regulated by the National Credit Act (NCA), but credit life insurance products were not.
This meant that some credit providers have been using this loophole to overcharge consumers who were desperate for credit.
How the new regulations will help you
African Unity Life (AUL) CEO Sonja Visser explains that the regulations will protect consumers in two ways.
“Up until now, consumers were often offered credit life insurance that was unsuitable or did not appropriately meet their needs. In some cases, credit providers charged exorbitant fees or premiums for credit life insurance. However, under the new regulations, these practices will not be allowed for any credit life agreement signed from 10 August 2017.”
The regulations set a monthly credit life insurance limit of R4.50 for every R1 000 owed on all credit agreements other than mortgages. Ordinary mortgage agreements have a R2 limit for every R1 000 owed.
So, for example, a R1 million mortgage should carry a maximum monthly credit life premium of R2 000, while a R10 000 loan would have a maximum monthly credit life premium of R45.
READ MORE: How to insure your home: dos and don'ts
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The new regulations also require credit life insurance policies to also cover death, permanent disability and, in some case, disability and unemployment. You can be compelled to take out credit life insurance, but you cannot be dictated as to which policy you choose.
“You now have far greater freedom of choice,” says Visser.
“Consumers can also use an already active policy that they might have in place to cover the new credit. All of this contributes to making it a very positive change for consumers – who will also find that any new credit life insurance policies taken out are generally more affordable.”
Unfortunately, the regulations cannot be backdated. The same restrictions will not apply to existing policies which were taken out before 10 August 2017.
Some companies who have up to now built their business models on charging these higher premiums might now struggle to keep offering life insurance products.
This could in some cases be negative for consumers who need the protection and who may not be advised to contact alternative providers to assist them.
“We believe the new regulations will protect vulnerable consumers from abusive practises and will support the ‘Treat Your Customers Fairly [TCF]’ principles in South Africa, which ultimately aims to protect the best interests of consumers,” says Visser.
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