How Does Debt Review Affect Your Insurance Claim?

Many people are unaware of the fine print in their policy when an insurance claim arises. What happens if you're under debt review?
Melissa Wentzel

Undergoing debt review can be a lifeboat to many South Africans who are caught in a vicious debt cycle. Many of whom are aware of the sacrifices that need to be made to get back to a healthy debt-to-income ratio. For one: you cannot apply for any more credit. But how is your insurance affected should you have an insurance claim?


Does Debt Review Affect My Insurance Claim?

Opting to undergo debt review can be a scary decision for people who are over-indebted. There are so many factors to weigh.

Firstly, not being able to take on any more credit can seem like a serious limitation to, for instance, someone who has survived on credit. But debt review needn’t be intimidating if it means rehabilitating how you use credit. And like any rehabilitation, it requires a few changes in perceptions. Living within your means, for one thing, can be a very freeing experience. More than likely, there are some questions you need put to bed before you take the plunge, voluntarily.

Questions like: “Can I keep my insurance policies?” And “What happens if I have a claim while under debt review?”

A Brief Overview Of Debt Review

The debt review process requires a qualified debt counsellor to assess your application and ascertain what you need on a monthly basis to survive. This will include all of the necessities that are specific to your situation. The information required on your application is your income and all of your statutory deductions (e.g. PAYE, medical aid, UIF, etc) and your essential living expenses.

These include housing, food, school fees, transport, bank fees, etc. And it also includes insurance. So provided your insurance payments are up to date, there should be no issues should a claim arise. However, there is some fine print.

What About The Fine Print?

According to the National Debt Advisors (NDA), many people are unaware that even after paying insurance premiums diligently, they may not receive a payout if they claim while under debt counselling. The reason for this is that some insurance policies will specify that should the insured party’s (that’s you) financial situation change, they must inform the insurer. Insurers may increase your premium if they feel you are a greater financial risk.

The NDA reports that not all insurers include a specific clause around debt counselling, but that it would it would be advisable to inform your insurer should undergo debt counselling. NDA:

Even though debt counselling is a financial rehabilitation process and a responsible way to manage your debt, some insurers may want to be informed, as they consider this to be a major change in your financial situation. If you don’t inform your insurers that you are entering debt counselling, you run the risk of them refusing to pay out when you claim

What To Do

Consult your insurance policies for any clauses pertaining to any changes in your financial situation. Be sure to inform your insurer if you do go under debt counselling, as you would if your home address changed. NDA: 

Some insurers may not understand debt counselling and will accordingly charge you higher premiums. Should they do this, it’s best to shop around for an alternative insurer who will offer you better rates.