Credit Life Insurance: The Price Is Capped by Law, and You Never Have to Buy Theirs
Almost every credit agreement in South Africa arrives with an insurance premium attached to it. It is usually presented as a formality, sometimes as a condition, and the amount is rarely discussed. Most people never look at it again.
Two things about that premium are worth knowing, and neither is well advertised.
The price is capped by regulation — there is a maximum a lender may charge you, per month, per R1 000 you owe. And you have a statutory right to refuse the policy they are selling and use your own instead, which the lender is legally obliged to tell you about.
Credit life is not a bad product. It settles your outstanding debt if you die or become disabled, which is precisely the moment a family can least absorb it. The problem has never been the cover. It has been the price and the way it is sold.
What it may cost
Regulations made under the National Credit Act set the maximum cost per month, per life insured — and that ceiling includes any commission, fees or expenses attached to the insurance, so a lender cannot bolt extras onto it:
| Type of credit | Maximum per month |
|---|---|
| Mortgage agreements (other than affordable housing) | R2 per R1 000 of the deferred amount |
| Affordable housing mortgages, under age 55 | R2 per R1 000 |
| Affordable housing mortgages, over age 55 | R2,50 per R1 000 |
| Credit facilities | R4,50 per R1 000 of the average utilisation of the credit limit in the billing cycle |
| Unsecured credit | R4,50 per R1 000 of the deferred amount |
| Short-term credit | R4,50 per R1 000 |
| Developmental credit | R4,50 per R1 000 |
| Other credit agreements | R4,50 per R1 000 |
An "affordable housing mortgage agreement" is one where the principal debt is not more than R450 000.
Two details in that table repay attention. For a credit facility — a credit card or store card — the charge is on your average utilisation during the billing cycle, not on the full limit. If you carry a small balance on a large card, the premium should reflect the balance.
And the "deferred amount" the percentage applies to expressly excludes the cost of the credit life insurance itself. The premium may not be charged on the premium.
So the arithmetic is checkable. On R50 000 of unsecured credit, the ceiling is R4,50 × 50 = R225 a month. If you are paying materially more than that, something is wrong, and it is worth a written query.
What the cover must at least do
The regulations also set a floor on what you get, not only a ceiling on what you pay. The cover must provide at least for settlement of:
- Death or permanent disability — the outstanding balance of your total obligations under the credit agreement.
- Temporary disability — your obligations as they fall due, for 12 months, or the remaining repayment period, or until you are no longer disabled, whichever is the shorter period.
- Unemployment, or becoming unable to earn an income other than through disability — on the same basis: 12 months, the remaining period, or until you find work or can earn again, whichever is shortest.
That third one is the benefit people forget they have. Retrenchment cover is built into the statutory minimum, and a claim after losing a job is exactly the situation the policy exists for. Many people in that position stop paying and never think to claim.
You cannot be charged for cover you could never use
Two provisions here are unusually direct, and both are worth checking on your own agreement.
If you were not employed when the policy was taken out, no cost relating to the risk of becoming unemployed or being unable to earn an income may be included in what you are charged. You cannot lose a job you did not have.
And if you were a pensioner when the policy was entered into, no cost relating to occupational disability may be included.
If you took out credit while retired or between jobs and the premium looks like a standard full-cover charge, that is a specific, checkable question to put to the lender in writing.
The right nobody is told about, despite the law requiring it
Where a lender proposes a particular credit life policy, the National Credit Act says the consumer "must be given, and be informed of, the right to waive that proposed policy and substitute a policy of the consumer's own choice."
Read the second half of that. Being informed of the right is part of the obligation. It is not a loophole for the well-advised — the lender is supposed to tell you.
This matters because credit life bought independently is frequently cheaper than the version bundled at the point of sale, and one policy can often cover several debts. If you substitute, the lender may require written directions allowing it to pay the premiums on your policy and bill you for them, which is a reasonable administrative condition rather than a way to refuse.
No mark-up, and they must tell you what they earn
Where the lender arranges the insurance, three further rules apply.
It may not add any surcharge, fee or additional premium above the actual cost of the insurance it arranged. The premium you pay is meant to be the cost, not the cost plus a margin.
It must disclose the amount of any fee, commission, remuneration or benefit it receives in relation to that insurance. You are entitled to ask what the lender earns on your policy, and it must answer.
And it may be a loss payee only up to the settlement value at the moment of an insured event — "any remaining proceeds of the policy must be paid to the consumer." If a policy pays more than the debt, the surplus is yours, not the bank's.
Underpinning all of it, the Act prohibits a credit provider from offering or demanding insurance that is "unreasonable" or "at an unreasonable cost to the consumer, having regard to the actual risk and liabilities involved", and caps cover at your total outstanding obligations, so you cannot be over-insured against your own debt.
What to do
- Find the premium on your statement. It is often a separate line rather than part of the instalment.
- Do the arithmetic: R4,50 per R1 000 owed for unsecured credit, R2 for most mortgages, per month. Compare it with what you are paying — and if you are still deciding on the loan itself, our personal loan calculator shows what the debt costs before any insurance is added.
- Check the basis on a card — average utilisation, not the full limit.
- Check whether you were employed when you signed. If not, the unemployment component should not have been charged.
- Ask what the lender earns on the policy. That is a disclosure they owe you.
- Shop the cover before assuming theirs is the only option, and exercise the substitution right if yours is cheaper.
- If you lose your job or cannot work, claim. The cover is there and it is the whole point of the product.
If the debt itself has become unaffordable rather than merely over-priced, that is a different remedy — see what debt review is. And if you want to see how credit life sits alongside other cover, our comparison of life insurance, funeral cover and credit life sets out what each is actually for.
For everything else, start at our money guides.
Frequently asked questions
What is the maximum a lender can charge for credit life? Per month, per R1 000: R4,50 on unsecured, short-term, developmental and other credit agreements; R2 on mortgages other than affordable housing; R2 or R2,50 on affordable housing mortgages depending on whether you are under or over 55. The cap includes commission and fees.
How is it calculated on a credit card? On the average utilisation of the credit limit during the billing cycle — not on the full limit.
Is the premium charged on the premium? No. The deferred amount the cap applies to expressly excludes the cost of the credit life insurance itself.
What must the cover include? At minimum: settlement of the outstanding balance on death or permanent disability; your obligations for up to 12 months on temporary disability; and your obligations for up to 12 months on unemployment or inability to earn, each limited to the shorter of 12 months, the remaining term, or recovery or re-employment.
I was not working when I took the loan. Should I pay for retrenchment cover? No. Where the consumer is not employed when the policy is entered into, no cost relating to unemployment or inability to earn may be included.
Can I use my own policy instead of the lender's? Yes. You must be given, and informed of, the right to waive their proposed policy and substitute one of your own choosing. The lender may ask for written directions to pay your premiums and bill you.
Can the lender add a margin to the premium? No. It may not add any surcharge, fee or additional premium above the actual cost of the insurance it arranged, and it must disclose any fee, commission or benefit it receives.
If the policy pays out more than I owe, who gets the difference? You do. The lender is a loss payee only up to the settlement value, and any remaining proceeds must be paid to the consumer.
