Often consumers take out Credit Life Insurance without actually knowing it. But before moving to the details, you might be wondering what Credit Life Insurance is. “Credit Life Insurance” is a life insurance policy taken out by a borrower in order to pay off their debt if they die, are disabled or retrenched. In a typical policy, the borrower will pay a premium, which is often rolled into their monthly loan payment and allows the lender to be paid in the event the borrower dies, is disabled or retrenched before the loan is paid off.

Although those are the instances usually covered, borrowers often do not understand this. In fact, consumers are often lead to believe that it is insurance to cover them when they are unable to pay back their debts, irrespective of the reason for the inability to pay. In fact, they often think if they find themselves in financial difficulties they can stop the monthly installments and the insurer will pay out as a result. This kind of confusion is cause by another type of insurance typically taken out by the lender – “Credit Guarantee Insurance”. With this type of

insurance, the lender takes out insurance to cover their interests in case the borrower fails to pay off the loan in circumstances other than death, disability or retrenchment. Lenders however often make the borrower pay for such insurance. This practice is incorrect.



Before signing any loan papers, ask the lender whether the loan includes any charges for credit life insurance. If it includes such insurance, ensure that you fully understand what is covered. If you do not want credit life insurance, tell the lender. If the lender still pressures you to buy insurance, find another lender. And review your loan papers carefully to be sure they have been drawn up correctly. A lender cannot deny you credit if you do not buy credit life insurance or if you do not buy it directly from them. If a lender tells you that you will only get the loan if you buy the credit life insurance, report the lender to the NAMFISA.

While the price of a policy will depend on the loan amount, credit life insurance policies can cost more than traditional life insurance. It is generally a little more with credit life insurance because there is a greater risk associated with the product and that makes for higher premiums.

That higher risk comes into play because credit life insurance is what is known as a “guaranteed issue product”, meaning that eligibility is based solely on your status as a borrower. Unlike most life insurance policies, the applicant will not be asked to take a medical exam or disclose health details because what is being insured is the balance of the loan, not the life of the borrower. Further the lender is the beneficiary, not you or your family.

Therefore, only buy credit life insurance if you are not insurable, meaning you are not able to buy life insurance through regular channels.