Using Life Insurance As Security For Your Personal Loan

In South Africa, a new investigation campaign has been launched by the National Credit Regulator(NCR), National Treasury and the Financial service Broad(FSB) to investigate the credit assurance products sold by the banks of South Africa. In this article I will briefly explain the purpose and the role of these products in South Africa.

One of the biggest concerns of the investigation is the huge premiums that are charged by these products. These insurance policies are normally provided by the loan companies or the banks them selves. We have seen that there are two types of policies that are directly linked to unsecured loans. It depends on your personal financial circumstances and can be in most cases being a lot cheaper than to get the loan on your own. The insurance policies which are sold by the bank can either be used as an individual loan or as a group scheme.

There are a number of factors which can contribute to the amount that you will pay. Thing like age, gender, education, health and smoking and drinking habits will have a major impact. If you are a young non-smoker with healthy habits then it would be a good idea to invest in an individual risk rated policy.

You will see that the group schemes have fixes rates and fees, irrespective of your habits and age. These policies are usually a bit more expensive but cover you for most of the risks involved.

It is good that you know if you are investing in an individually risk rated policy, and then you will be obliged to undergo a full medical examination. The outcomes of your health check up will have a direct impact on your monthly premiums. If you want to go for a group policy then you will also need to undergo the health examination. If they find that you are suffering from a dreadful disease, then you won’t be allowed to obtain that specific type of cover.

We have seen that the cheapest way is to extend the term and the amount on your current loans. The banks do offer this form of insurance. Banks are not allowed to tell you from which company you should get insurance but they can tell you what type of insurance is needed to cover their risk. They might insist that you obtain a retrenchment policy before being able to get the loan from them. If you have a retrenchment benefit on your current life insurance policy, then you will most likely be granted the loan.

It is important that you know that if you invest in a life cover policy from the bank, then you should not pay it together with your loan premiums. You will end up paying interest on that premium.

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