life assurance policies cover debt. If you take out this type of cover you are taking out life assurance on the possibility that you may die or become disabled before you are able to pay a significant debt. Whenever you buy something big on credit, such as a motor car, you may be asked to take out life and disability assurance to cover the amount of your debt. Credit life assurance, although often necessary, is currently one of the major rip-off areas of life assurance as in many cases you do not need it or you may be sold inappropriate assurance.
Who Needs Credit Life Assurance?
Credit life assurance is essential if you do not have sufficient assurance to cover a major debt if you die or become disabled. In its correct form credit life assurance should be what is called “decreasing term” assurance, where the amount of assurance decreases in line with your debt.
For example, if you borrow R100 000 to buy a home, the assurance would pay out R100 000 if you died after taking it out, but 20 years later, if you died days before making your last payment, the assurance would only pay out the amount owing. However, in both cases your dependents would own the home without owing a cent.
Premiums for “decreasing term” assurance are cheaper than on “level term” policies where the level of cover remains the same throughout the life of the policy. If you are using an access or variable mortgage bond and are not steadily decreasing the level of your debt then you should opt for “level term” assurance.
How To Get Credit Life Assurance
In most cases credit life assurance will come looking for you, particularly when you buy something large on credit, such as a home loan or a motor vehicle. But it is also being sold on comparatively small debts such as the higher purchase of furniture where it is not really necessary.
What Does It Cost?
As with all life assurance, credit life assurance is a very competitive business. Premiums are easily comparable, particularly if you are not lured into anything complex with a confusing array of bells and whistles. Insist on written quotations of premiums from at least five life assurance companies before you buy.