Credit life insurance may be the first type of insurance that many low-income consumers encounter. It can offer an opportunity for introducing consumers to the concept of insurance or lead to consumer protection concerns if consumers are not aware that they have insurance, or if a captive market leads to exorbitant pricing.

South Africa’s National Credit Act of 2005 mitigates the potential negative implications of credit life insurance by requiring that consumers be allowed a choice of insurance provider when required to take out mandatory insurance and that financiers should inform applicants of such right and may not charge any surcharge or fee on the insurance offering.

This study offers the demand-side perspective on how consumers experience the purchase of credit life insurance, particularly in the low-income space. Through a mystery shopping exercise and consumer interviews, it sought to determine whether customers in practice have a choice of insurance provider and whether the terms and conditions are clearly explained to them. The findings suggest not.

This research served as input for a document published by National Treasury and the Financial Services Board to consider the policy options for consumer credit insurance in South Africa.