Personal Finance

Credit life assurance: How do I protect myself against loans risk in case of job loss?


Kenyan firms have shed jobs for the third month in a row on falling demand for goods and services. PHOTO | SHUTTERSTOCK

Credit life assurance is a two-faced benefit insurance that cushions you as the loan borrower from uncertainties of life that may impact your honouring of large loans such as vehicle or mortgage loans. At the same time, it protects your lender from financial liabilities that may arise from your retrenchment, demise, permanent total disablement, or ailment of a critical nature.

What happens when I lose my job?

Job hunting can be dusty, lengthy, and full of heartbreaking emails, then comes the not-so-easy conversations with your spouse.

The retrenchment credit life benefit comes in the form of monthly payments to your lender on your behalf up until you can secure another job, or alternative source of income. These payments are usually run on a payroll that enables your insurer to settle your periodic loan payments without fail and by a specific date as you scout for another job.

These on-behalf payments can be made for up to 12 months, depending on the insurance contract in place, and the period taken to secure another job. The catch here is that the benefit is excluded for misconduct dismissals, voluntary retrenchment, or retirement and suspensions.

What if I die, or I’m disabled?

Death can be burdensome to your loved ones, but such protections ease some of this pain by clearing any outstanding loans that you may have left behind on your demise. This ensures that even when you are still alive and well, you can start those loan take-up conversations with your partners for the benefit of your investments and your family.

The permanent total disability benefit within this cover comes to aid when you cannot work anymore due to incapacitation of an accidental nature, ensuring that you are taken care of even after such setbacks, in terms of loan repayments.

Despite credit life insurance providing this form of lifeline on your demise or incapacitation, the benefit will not apply for self-inflicted injuries, alcohol or drug abuse, participation in crimes or hazardous activities.

What if my medical bills are too heavy for my pockets to meet my loan obligations at the expense of my family ones?

Treating and managing any critical illness is expensive and mentally and physically exhaustive. Critical illnesses push families and individuals into selling assets, unplanned borrowings, and lifestyle changes. Applying credit life insurance to your borrowings in your times of good health ensures that you are cared for in your ailing moments.

The list of critical illnesses covered is extensive ranging from cancers, kidney failure, heart attacks, paraplegia, coronary bypass surgery and strokes. Even while you recover from organ transplants of the heart, liver, lung, kidney, pancreas, and bone marrow, you will still have part of your loan settled.

The critical illness credit life benefit is a modern benefit that was traditionally non-existent, and which allows your insurer to clear a percentage of the loan. What you need to know, however, is that these health conditions must not have been diagnosed prior to the commencement of the credit life policy.

The credit life cover can be tailored to meet your needs. For instance, a mortgage credit life arrangement would ensure that the balance of your home mortgage is paid off, if you die before the loan is paid off. Your family gets to enjoy living in the home you leave behind, and you will have something to be remembered for long after you are gone.

You are guaranteed peace of mind on your bad days knowing that you and your loved ones will be taken care of in your worst days gives you the fulfillment, reason, and assurance to keep fighting for them.

Mwangi is a Risk Consultant at Zamara and can be reached via [email protected]