When can insurance pay your salary loan?

Joshua Akena.

What you need to know:

In a typical life insurance policy, the borrower would have to be subjected to medical assessment to determine the insurer’s acceptance of the risk.

Financial institutions give out loans for various purposes. But borrowers (debtors) are exposed to life threatening risks such as death, disability and life-threatening diseases which would create a burden on the estate of the deceased in case of contingency.

Such an eventuality would deplete family assets or property thus increasing poverty because of the outstanding running balances.

Insurance, over the years, has evolved to respond to the emerging needs of society and is now extending to financial institutions who lend out money.

The financial institutions have a financial interest in the life of the borrowers to the extent of the outstanding balances owed by the members. Through credit life insurance, financial institutions are protected from the risks of such exposures whereby the outstanding loan balances would be paid once an eventuality such as death, disability or even critical life-threatening diseases occurs to the debtors hence protecting the interests of the creditors.

Therefore, insurance will continue to sustain financial institutions who lend out money which has allowed them to serve an even bigger mass, hence increasing financial inclusion. The borrower also benefits since their estate is protected from financial hardships. The premium payment modalities have also been simplified by the creditor.

The Credit Life insurance policy operates under a decreasing term model implying that the outstanding loan balance reduces while the borrower continues to pay the loan. Once the loan has been fully repaid, it is expected that the insurer’s liabilities would cease as there is no outstanding loan balance.

The Credit Life policy would be offered to all borrowers where different loan categories exist such as salary, car loans, mortgages etc. In a typical life insurance policy, the borrower would have to be subjected to medical assessment to determine the insurer’s acceptance of the risk i.e whether the insurer would agree to cover the client or not, however this would not be the case in credit life insurance since only borrowers with high valued loan balances would be considered as many would fall within the Non- medical automatic acceptance of the risk by the insurer.

Loss of a job
The Credit life policy has an additional benefit known as a retrenchment cover. With the current volatile employment sector, companies have retrenched employees due to global, pandemic, and macro- economic environment challenges.

It is now a reality that being laid off is very possible today. Insurers have been able to take into consideration this emerging risk of company restructure or closure due to economic volatility and provide insurance protection for a given period by covering the monthly loan repayments depending on the policy structure Terms and Conditions.

Retrenchment incorporates redundancy that is involuntarily by the employer due to new technology, closure of the employer, restructuring of the business leading to lay-offs resulting in staff being reduced.

To enable pricing of the Credit life product; UAP Old Mutual requires information about the financial institution noting the number of borrowers, maximum minimum loan amounts issued and the duration of the loan. The Credit Life product can also be extended to an additional funeral benefit to the borrower’s family following demise which will support the family with burial arrangements within the policy limit.

The claims process documentation would include claim notification, completion of the claim form, copy of death certificate issued by NIRA and key loan supporting documentation of the borrower. These documents will have to be submitted by the financial institution.

Credit life insurance is offered to various market segments ranging from banks, micro-finance institutions, Saccos and even affinity groups.

The writer is head of operations at UAP Old Mutual Life Assurance.