Do You Know Your Insurance Rights?
Why must I have insurance when I take a loan, get a credit card, buy a car or house or even if I have an overdraft?
The answer is simple: credit providers’ link insurance, either by means of credit insurance, life insurance or short term insurance, to your account to safeguard the credit they give you in the event of a sudden unplanned loss.
credit providers’ link insurance… to your account to safeguard the credit they give you in the event of a sudden unplanned loss
Can They Force You To Take Insurance?
You might wonder, can a credit provider force you to take insurance? Yes, if you want their credit they can! BUT a credit provider can’t force you to take their own insurance. You, as the consumer, have the choice to either accept their insurance or you can give them proof of your insurance (when you apply) or later to replace the existing insurance at any stage during the loan term with your own insurance, as long as the benefits of what is covered is the same.
Not many consumers actually know that you can give your own insurance as security.
Why Would You?
So, why might you want to replace the insurance of the credit provider with your own insurance? The answer is the premium. You may be able to save quite a bit of money and still receive the same benefits and protection if you switch insurance providers. The real question is: why should you pay more towards a loan that includes the credit provider’s insurance if you can pay less by providing your own insurance?
With credit you get various types of insurance, for example, you get credit insurance, life insurance, short term insurance & structural insurance but they all have one thing in common, they are all bound by various underwriting requirements and T’s & C’s. Seeing that credit providers will simply use whatever underwriter they have an agreement with, it does mean the premium they ask the consumer might not be the most affordable on the market. There are various specialist underwriters in the market that can offer consumers much more affordable premiums for the same benefits which the credit provider’s insurance offer. The power is in your hands. If you, as the consumer, request the existing credit provider supplied insurance to be replaced with your own insurance, the credit provider must adhere to your request.
‘it does mean the premium they ask the consumer might not be the most affordable on the market’
Consumers should also be very aware that with your bond account the credit provider might request either bond cover (life insurance that covers the outstanding amount owed) or structural insurance or both. Both are very important but what many consumers fail to realise is that from the date of application to buy your house these insurances are included in your bond repayment calculations and the actual monthly instalment can be debited from your bond account. What this means is that on a monthly or annual basis the outstanding balance of your bond increases due to the amount that is added for the payment of these insurances. In reality that means not only are you paying interest on your bond account but also on your insurance which is linked to your bond. Now, over a normal bond repayment of 20 or even 30 years these days, this will eventually add up to thousands of Rands of additional interest paid which you could possibly reduce if you have your own insurance. Paying less interest could mean reducing the repayment term.
Do You Have The Right Cover?
Not everyone knows how you can save… or be hurt by having the right or wrong mandatory insurance cover. So, why not talk to a financial advisor (FSB compliant) who specialises in debt insurance specifically and look into the possible replacement of existing cover? It could mean that you end up paying a lot less interest over time towards totally necessary and often obligatory insurance cover.
About the writer:
Find out more on Facebook HERE