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 misunderstand this insurance, believing it covers any inability to pay. Some think they can stop payments during financial hardship and the insurer will cover the loan.
This confusion is often caused by Credit Guarantee Insurance, a separate policy taken out by lenders to protect themselves if the borrower defaults for reasons other than death, disability, or retrenchment. Some lenders wrongly pass the cost of this policy onto the borrower, which is not correct.
