Credit policies do not cover the self-employed

If you’re self-employed or a contract worker, and you have been sold a credit life policy or a credit protection plan which includes retrenchment, this represents mis-selling, the ombud for financial advice says.

Financial services providers (FSPs) and their representatives are required by law to obtain all relevant and available information from you to ensure that any recommendation made by them is appropriate to your needs and circumstances.

Naresh Tulsie, the ombud for financial services providers, says an FSP would be required to have knowledge of the nature of your employment. Such information would have been disclosed during the credit application, and therefore, the provision of a retrenchment benefit to a self-employed person or contract worker would be inappropriate and a matter for investigation by his office.

The ombud, who is also known as the FAIS ombud, says his office has received numerous complaints where claims in respect of retrenchment have not been honoured by the insurer because the consumer was either self-employed or employed in terms of a contract.

When you take out a credit life policy and a credit protection plan you are not subject to medical underwriting, so all applications are accepted irrespective of the risk posed to the insurer.

This is important to understand, the ombud says, because with these products the risk is managed by various exclusionary clauses. Such clauses deny you cover if you have any pre-existing medical condition that was diagnosed or for which you received treatment before you took out the policy.

“This type of exclusion also differs between insurers, with some applying the exclusion as a general exclusion for the term of the policy, normally the duration of the finance agreement, and others applying the exclusion during the initial 24 months of the policy.”

But this doesn’t mean that FSPs and their representatives can get away with selling you policies without disclosing  any “material” term, such as exclusions and instances when cover will not be provided.

This is because you must be able to make an informed decision when you buy a financial product, and the product must be appropriate for your needs and circumstances.

The FAIS ombud’s handling of a case involving a consumer whose credit protection policy failed him highlights these obligations on the provider.

The consumer had taken out a credit protection policy after having bought a car.

The policy was to have provided cover in the event of him being unable to make the monthly payments as a result of death, permanent disability or retrenchment.

After suffering a stroke, the consumer was rendered disabled. But his claim was rejected because the cause of the disability was directly linked to a condition that had been diagnosed before he took out the policy.

It was then that he discovered that the policy had a 24-month waiting period.

He also wasn’t aware of the exclusion of any pre-existing condition which applied to his policy.

On receipt of the complaint, the ombud asked the credit provider to show that it had obtained all relevant and available information from the consumer and that all material disclosures had been made.

The credit provider duly revised its decision and honoured the claim in full by settling the outstanding finance on the vehicle in the amount of R115,240.

If you believe you’ve been financially prejudiced, contact the FAIS ombud on (012) 7625000 or (012) 470 9080 or email info@faisombud.co.za.

5 things to remember when taking out credit life cover

The office of the Ombud for Financial Services Providers offers the following pointers to consumers of credit.

1. When applying for any form of credit you may be required to apply for a policy to cover your debt in the event of death, disability, terminal illness or retrenchment. The financial services provider must inform you that you have the right to source an alternative policy of your choice as a substitute to the policy provided.
2. When a financial service is rendered that encompasses advice, the financial services provider is required to obtain all relevant and available information to ensure that any recommendation made is appropriate to your needs and circumstances.
3. The financial services provider must disclose to you any material terms of the contract, such as the existence and nature of any exclusionary clauses which would see any future claims rejected. This would include any exclusions for pre-existing medical conditions and the duration of the exclusion and/or any applicable waiting periods.
4. Should you be self-employed or employed on a contract basis, the provision of a retrenchment benefit as part of a credit life or credit protection plan may not be appropriate.
5. There are different types of pre-existing condition clauses. Some apply for a period, of say 24 months, and in some cases the exclusion may be a blanket exclusion for the duration of the policy.