By Petrie Marx, 19 September 2019
The sustained economic downturn is putting extreme pressure on companies, with staff retrenchments being part of the fallout. In tough times, it’s therefore imperative to be prepared. If you’re thinking of making big moves like investing in a home sometime soon, consider how to protect your loved ones from the pressure of debt should a curveball come your way.
Petrie Marx, Product Actuary at Sanlam, says, “One of the best ways to protect you and your loved ones when taking out a loan is to invest in credit life cover. Usually, it’ll be offered to you by the credit provider on the back of the loan you’ve applied for. It protects you in two primary ways.
Firstly, your lifestyle is protected as the credit provider will not lay claim on the asset that was financed, for example, your family’s home in the case of a mortgage agreement. But secondly, and even for unsecured loans, it won’t leave you, your loved ones, or your estate, with debts that still need to be paid off should you be permanently unable to repay the loan as a result of an unexpected death or disability.”
In the case of retrenchment or temporary disability, Marx says a policy’s minimum benefits must include servicing your loan instalments for a period of 12 months. Note that retrenchment cover doesn’t apply to self-employed customers, but temporary
disability cover should still be provided. In the event of death or permanent disability, your outstanding loan balance will be settled in full.
“Regulations also allow for the substitution of the policy offered by the credit provider with a policy of the consumer’s choice, provided that such a policy provides at least these prescribed benefits. Most people consider this option and then chat to a
financial planner, especially for bigger loans like mortgage agreements. The policy is typically ceded to the bank as security for the loan.”
Marx says the maximum cost is now regulated to ensure all consumers get good value from credit life insurance. The maximum cost is R2 per R1000 of the loan value, for a mortgage agreement (so R2000 on a R1-million loan). Higher limits apply to short-term credit transactions and unsecured loans. The cost of the cover varies according to your age, risk profile and health status. A young, non-smoking client, for example, can expect to pay about R800 per month.
According to Marx, “Cover against retrenchment is not easily obtainable on a stand-alone basis. Also, retrenchment cover is not the only protection customers need. Credit life cover provides holistic protection. A serious accident or illness that will result in the temporary inability to pay your instalments may also strike without warning. Not to mention even more serious events that could leave you permanently unable to pay.”
Marx suggests the following:
Marx concludes that it’s always best to speak to a financial adviser to ensure contingency plans are in place should curveballs hit.