It's a good question: does your credit agreement include credit life insurance and should you claim credit life insurance as an alternative to the debt holiday relief payments currently being offered due to the lockdown?

Debt holiday relief payments and its implications

Certain banks have announced that they are willing to give their customers debt servicing relief during the lockdown which was brought on as a result of Covid-19. This might include reducing monthly instalments or taking a full payment holiday for a specified period.
 
When considering this offer, it is important to make sure that you review the terms and conditions of such an offer, as interest on the debt will in all likelihood still accrue, which is not necessarily in your best financial interest.
 
It is recommended that you continue with your repayments if you are in a position to do so. However, if you are unable to do so, first consider all your options before accepting debt holiday relief.
 
Credit life insurance

Section 106 of the National Credit Act No. 34 of 2005 (“NCA”) states that a credit provider may require a consumer to maintain credit life insurance during the term of a credit agreement or insurance cover in terms of a mortgage agreement in respect of immovable property or against damage or loss of any property (excluding immovable property).

This means the insurer could compensate the credit provider (for example the bank) for a period of up to 12 months in the event that the consumer is unable to repay a debt as a consequence of -
 

• unemployment or inability to earn an income; or
• permanent or temporary disability; or
• death.

This means, for example, that if you, as a consumer, loses your job, the cover must pay your instalments for up to 12 months. Another example is where you die or become permanently disabled, the cover will have to settle your outstanding balance. There are, however, certain exclusions and limitations which applies to credit life insurance cover which need to be kept in mind.

An amendment to the NCA, in the form of regulations and which came into effect on 10 August 2017, extended credit life cover to losing income while remaining employed, including being forced to take unpaid leave, which has happened to so many people as a result of Covid-19.

Applicability to Covid-19 and the lockdown

How credit life insurance may be applicable to you is dependent on the specific conditions of your insurance policy and your circumstances of employment or business, most commonly unemployment or loss of income for a business due to the nationwide lockdown. 

It is therefore advisable to seek legal advice prior to accepting a holiday relief offer in order to establish whether your insurance policy deals with credit life insurance.
 
Should you meet the requirements of your credit life insurance it could be advisable that this option be used instead of debt holiday relief where your outstanding balance to the credit provider accumulates.
 
See also: Does your insurance cover your business' loss of income due to the lockdown? https://www.phinc.co.za/Blog/BlogDetail.aspx?BlogID=142