Very often consumers take out Credit Life Insurance without actually knowing what it is.Credit Life Insurance is a policy taken out by a borrower to cover their debt if they die, become disabled, or are retrenched. The premium is usually included in the monthly loan payment, ensuring the lender is paid if the borrower can't repay due to these specific events.
However, Many borrowers are led 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, very often they think if they find themselves in
financial difficulties they can stop the monthly installments and the insurer will as
a result pay out.
What has, however, caused this kind of confusion is another type of insurance
typically taken out by the lender. This kind of insurance is called “Credit Guarantee
Insurance”. With this type of insurance, the lender takes out insurance to cover him
or herself in case the borrower fails to pay off the loan in circumstances other than
death, disability or retrenchment. However lenders often make the borrower pay
for such insurance. That practice is incorrect.
What do borrowers need to know?
Before taking out a loan, it's important to understand what Credit Life Insurance is, how it works, and whether it’s right for you. Many borrowers pay for this insurance without realizing what it covers — or that they may not need it at all.Issued by:
Phillip N. Shiimi
REGISTRAR: LONG AND SHORT-TERM INSURANCE