CRA Insurance Explored – South Africa

By Helena Wasserman

  • You may have credit insurance on your home loan, credit card, short-term loan, or vehicle loan. 
  • Since 2017, these policies will cover your repayments if you lose your job or part of your salary.
  • But they won’t cover the self-employed.

You may have insurance on your home loan, credit card, or short-term loan that could cover your repayments if you lost your income during the coronavirus crisis – without even knowing about it.

Credit insurance would traditionally pay your outstanding debts if you die or are permanently disabled.

But in 2017, new legislation was adopted in South Africa which means that credit insurance must also cover your repayments – for up to 12 months – if you are unemployed or unable to earn an income, and not necessarily due to illness.

Even if you lose only part of your salary during the coronavirus crisis, credit insurance may kick in to take over your repayments.

Which products have credit insurance? 

You can take out credit insurance on most debt products including card accounts, home loans, your overdraft, and vehicle finance. But it is not always mandatory, so you need to check whether you have credit insurance in place.

If you took out an unsecured loan after 1 August 2017 it is guaranteed to come with the new credit insurance mandated by law. Credit insurance on these loans will cover payments if you become unemployed or are unable to earn an income, says Walter Marte, executive head for insurance and Nedbank.

Also, credit insurance is mandatory for first-time home buyers in the affordable market, says Dushen Naidoo, managing executive of insurance at Absa. Currently, government defines the affordable market as households with a joint monthly income of a maximum of R25,400 – which would qualify them for a mortgage of R900,000.

What will credit insurance cover?

Credit insurance of this kind means if you lose your job and entire salary, instalments will be paid for twelve months, or for the remaining period of the loan, or until you can earn an income again, whichever is the shorter period.

If you lose only a part of your salary, say 60%, the credit insurance will cover only 60% of the instalments.

For Nedbank clients, if you are unable to earn an income or suffered a reduction in income by more than 20%, your claim will be immediately considered, says Marte. “Under normal circumstances one is expected to have lost income for an entire month before becoming entitled to a claim.”

Will you get a payout if you are self-employed?

Short answer: no.

None of the banks Business Insider South Africa spoke to offered credit insurance for loss of income to the self-employed.

“Self-employed individuals are generally excluded, however these claims are considered on a case-by-case basis. We encourage customers to reach out to us in this regard,” says Absa’s Naidoo.

Who else will be excluded?

Some benefits won’t cover your payments if you are at normal retirement age already, which is 65.

Also, credit insurance won’t pay out for every type of lost income. The loss in your earnings needs to be in an unforeseen or unexpected event. A contract coming to an end, or similar foreseen eventuality, will not qualify.

Credit to BusinessInsiderSA.