Reading Time: 3 minutes

Partner Content

There are many benefits to credit life for both consumers as well as credit providers.

By now we should all be aware of the minimum prescribed benefits and rate caps that were implemented 2017 as per the DTI Notice.

However, there is a topic that I wish to raise awareness around – Surpluses.

By definition a Surplus means: 

An amount left over when requirements have been met. 

So, the question that probably now jumps to mind is: How does this relate to a Credit Life insurance policy?

‘How does this relate to a Credit Life insurance policy?’

Credit Providers and Debt Counsellors have been utilising Credit Life for numerous years now to insure credit in order to mitigate certain elements of risk related on the loans, whether it be a single product for a single loan or, as in the case with debt review, a credit life consolidation product to insure multiple credit agreements once a client applies for Debt Review.

Over the last 13 years of underwriting in the debt review industry there have been a few noticeable issues but none more obvious than the lack of annual reviews being conducted. In some cases, consumers have been under debt review for 5 years plus without a single review being done.

For obvious reasons, a review, at some stage during the consumers debt review period will be quite beneficial. It provides both the DC and consumer with the opportunity to evaluate whether they are on course with the rehabilitation, whether there are discrepancies in outstanding balances and how much longer to go – all round a win/win for both parties.

However, after investigation and discussions with various Debt Counsellors, the conclusion was that reviews are somewhat challenging for Debt Counsellors and the chances of even a single review being done is actually quite slim.

So back to the Surpluses – when the client originally opted to insure their debt on a credit life policy, the total outstanding balance was, (for example) R 100 000.00.

They would`ve been charged a rate per R 1000.00. With ONE that rate would be R2.95 which would cost the consumer R 295.00 for a R 100 000.00 worth of cover.

Moving on a few years down the rehabilitation cycle, this balance has now dropped to only R 50 000.00. This would mean that the consumers premium should be half of the original premium – R 147.50 however, due to the lack of reviews the client is still paying for R 100 000.00 cover despite needing only half.  See the issue?

When a claim is made the outstanding balance must be paid to the credit providers and the surplus paid to the consumer in the event of Disability or into their estate in the event of Death. Policyholder Protection Rules (PPR) are quite clear in that consumers must not be prejudiced at all.

Question: Do you think that a client that does not receive their surplus is being prejudiced?

Question: Does your current service provider pay out surpluses?

 Let`s do the right thing by our clients, this is an investment not only in your business but the industry as a whole!