Business & Economy

Tuesday, 12 June 2018 15:49

Credit Life Insurance – ignorance is not bliss

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Are you really paying a competitive and fair rate for the actual risk you represent to the bank?

If you currently have a personal loan, you will have credit life insurance which banks require as security for your debt should you become unable to service your loan repayments due primarily to death, disability or retrenchment.

What you may not know is how much you are paying for your credit life insurance, what it covers, how to claim, and whether you’re paying a competitive and fair rate for the actual risk you represent to the bank. Most crucially, you may not be aware that you can shop around for the best credit life insurance offering and that you are not obligated to take this cover with the loan provider. If you have an existing loan, you can change your credit life insurance to a provider that offers better rates and benefits without any repercussions as long as there is no break in cover. 

This is according to Tlalane Ntuli, co-founder and Chief Operating Officer of Yalu, a newly launched digital insurer that offers credit life insurance.

“Financial inexperience costs South Africans billions of Rands every year, simply because consumers don’t educate themselves to make better financial decisions.  In the eagerness to secure a personal loan, it may be tempting to sign the loan agreement coupled with the credit life insurance offered by the loan provider, without fully interrogating the conditions and cost implications over the full term of the loan,” explains Tlalane.

“It’s human nature to take the path of least resistance, so many people simply accept what’s offered at the point of sale to avoid the ‘hassle factor’.  Once signed, people often do not revisit these costs to see whether there are better options for them in the market.  But impulsive decisions like this can cost you thousands of Rands in unnecessary costs over the term of the loan - money that could rather be redirected to paying off the loan faster and save on interest charges,” adds Tlalane.

New credit life insurance regulations came into force in August 2017 which caps credit life insurance costs to R4.50 per R1000 loaned, but most importantly it allows consumers to select their own preferred credit life provider and switch cover should they find a product offering that better meets their needs.  

“It’s very important to note that the capping of fees for credit life insurance premiums only applies to new loans and not retrospectively, and many loan providers have not revised existing credit life premiums downwards.  If you have an existing loan pre-dating August 2017, its crucial to check what you are being charged for your cover.  A quick review of your current loan agreements could prove to be a real eye-opener,” she adds.    

Consider the following simple example:  on a loan of R100 000 with a credit life premium of R4.50 per R1000 compared with R8 per R1000, over a loan term of three years:

  • Total credit life paid at R4.50 per 1000 over three years: R450 per month x 36 = R16 200
  • Total credit life paid at R8.00 per R1000 over three years: R800 per month x 36 = R28 800
  • Difference:  R12 600

The difference in credit life premiums over the three-year term is an astounding R12 600 or R350 per month – a huge sum of money which could rather go towards paying off your loan much faster and reducing the impact of compound interest on your pocket. 

“A key differentiator for Yalu is that the monthly credit life premium decreases automatically as the outstanding loan amount reduces each month.  You should not be required to maintain a credit life policy in excess of your actual liability, so as the loan amount reduces, it stands to reason that the premium should decrease too, however most loan providers will keep the monthly premium at a flat rate for the duration of the loan term.  The reality is that any pay out on the policy will only cover the outstanding debt, so you should only pay for the cover you actually need to settle your outstanding loan and not a cent more.  Yalu is also the only credit life provider that offers 10% of premiums back at the end of the loan term if you don’t claim,” adds Tlalane. 

So, before you think that swopping your existing overpriced credit life cover isn’t worth the hassle, consider what it would mean for your pocket and finances if you could pay the savings on your credit life policy in on your loan repayments instead?  Yalu’s offering is the only policy in the market that can be purchased effortlessly online in under five minutes, it removes the admin hassle of switching from an existing credit life insurance provider as Yalu does all the heavy lifting of cancelling the old policy on your behalf, and guarantees you coverage for all the benefits that your current insurer provides. And to top it off, one credit life insurance policy can cover all your loan commitments - saving you more money on unnecessary admin fees and debit order costs. When it comes to knowing better and making wiser financial decisions - ignorance is NOT bliss, and could be costing you a huge whack of money every year that you need not be spending.

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Our name “Yalu” is short for the Zulu term isiyalu - the source of a river.  Yalu was born out of a passion to nourish and bring life to the world of credit life insurance. Our goal of delivering true value for money is evident in the transparency of our products, the simplicity of our process and the fairness of our pricing.  Simply put, we believe in doing right by our customers. By making credit life insurance easy to understand, ensuring that you pay what is fair and rewarding you when you settle your loan, we are changing the face of credit life insurance for your benefit.

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