When you take out a loan your creditor will often automatically include credit life cover to protect themselves, should you become incapable of upholding your monthly instalments.
But you do have the right to replace their suggested provider with one of your own, or in some cases cancel the cover altogether. But how long will it take to do this, and is it worth the effort? We find out.
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Selecting your own credit life cover provider
Credit life cover protects you in the event of death, permanent disability, temporary disability, and retrenchment. However, note that the specifics depend on your unique insurance provider.
According to Reagan Mitchell, certified financial planner and managing director of WealthyMe, consumers have the right to choose any credit life provider they wish, to cover a loan.
“There is no obligation to take out credit life cover with the company providing the loan. It’s advisable to shop around for comparative credit life policies,” says Mitchell.
He explains that consumers can substitute their credit life policy at their discretion. But before substituting your credit life cover, he suggests doing a proper analysis of the differences between the existing policy and the replacement policy.
“This decision should not be based only on the price of the policy. Credit life policies may differ in benefits, exclusions, and waiting periods,” says Mitchell.
READ MORE: Can your credit life cover be increased?
How long will it take?
Mitchell says there’s no stipulated time period that a consumer needs to adhere to when shopping around and swapping cover.
“You can swap to a provider of your choice at any given time, provided you have given the 30-day notice period,” says Mitchell.
According to Heetal Govindjee, credit life product head at FNB Life, at point of sale and during the term of the loan, the process to review and accept the ceded policy can take up to 3 business days.
David O’Brien, managing director of Meerkat, points out that changing credit life providers is an administrative process and, therefore, how long it takes to make this change depends on the speed of the administrative departments of the credit providers.
Should you consider doing this?
According to O’Brien, it’s worth saving money where you can, particularly if you can repurpose that premium reduction into reducing the debt.
“However, if the loan amounts are small, then the credit life premium is likely to be small, and the change may not be worth the effort of making it happen,” says O’Brien.
Govindjee warns that many insurers don’t cover customers for inability to earn an income. As a result, these customers would not have been able to make a claim during lockdown.
“Customers must take into account the benefits, terms and conditions, and pricing of each policy when making a decision on which product is best suited to their needs,” says Govindjee.
Mitchell points out that consumers are usually so happy when their loans are approved that they just sign documents to get the money into their bank accounts.
“My advice to consumers is to make sure that the premiums are not financed, because that makes it a little more complex to replace the credit life policy. Also, at application stage, consumers should first shop around to get the best offer on credit life,” says Mitchell.