FAQs on credit life insurance

Updated

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Introduction

Credit life insurance is one of the most practical risk management tools available to lenders on Lendsqr. When a borrower takes a loan, and unexpected events occur, such as death, permanent disability, or involuntary job loss, credit life insurance steps in to cover the outstanding loan balance, protecting both the lender’s portfolio and the borrower’s family from the burden of unpaid debt. If you are a lender considering enabling credit life insurance on your loan products, or already using it and have questions about how premiums, coverage, and claims work, this page covers the most common questions. For a deeper conceptual overview, see Understanding credit life insurance.

Coverage and eligibility

Why should I offer credit life insurance to borrowers?

Credit life insurance benefits both sides of the lending relationship. For lenders, it reduces the risk of loan defaults caused by events outside the borrower’s control, and transfers that default risk to the insurance provider rather than leaving it on the lender’s books. For borrowers, it provides peace of mind that their family or business will not be left with an outstanding loan debt if they die, become disabled, or lose their job involuntarily.

What types of risks are covered under credit life insurance?

Credit life insurance on Lendsqr covers the following events:

  • Death. If the borrower passes away during the loan tenure, the outstanding loan amount is settled by the insurance policy.
  • Permanent disability. If the borrower becomes permanently disabled and is no longer able to work, the remaining loan balance is paid off by the insurance provider.
  • Critical illness. The outstanding loan benefit is paid in accordance with the terms of the policy document.
  • Involuntary job loss. If the borrower loses their job involuntarily, the insurance covers up to six months of loan repayments, subject to a waiting period of three months from the date of unemployment before a claim can be submitted.

Are there any risks not covered by credit life insurance?

Yes. Credit life insurance only covers the specific events listed above. If a borrower defaults for any other reason, such as financial mismanagement, voluntary resignation from employment, or business failure unrelated to a covered event, the lender assumes responsibility for managing that default as they normally would. This includes initiating debt recovery, applying penalties, and using automated collection tools such as direct debit and card charges, all of which Lendsqr supports.

Premiums and cost

What is the premium rate for credit life insurance?

The premium rate is 0.15% of the loan amount.

Who pays the insurance premium – the borrower or the lender?

The borrower pays the premium. Once the loan is approved and the funds are disbursed to the borrower’s wallet, the premium amount is immediately deducted from the disbursed sum. At the same time, a credit life insurance policy is automatically created for the loan, no additional steps are required from either the borrower or the lender.

Does the insurance premium affect the borrower’s repayment terms?

No. The premium does not change the repayment structure. For example, if a borrower takes a loan of 1,000 currency units with a premium of 50 units deducted at disbursement, they receive 950 units as the take-home amount. However, their repayments are still calculated on the full loan amount of 1,000 units plus applicable interest. The insurance coverage is in place, and the repayment schedule remains as originally agreed.

Setting up credit life insurance

What is required to set up credit life insurance on Lendsqr?

No additional technical configuration is needed beyond being an active lender on the Lendsqr platform. Lendsqr has already handled the necessary integrations with the insurance provider. To start offering credit life insurance, you simply enable it at the product level on the loan products where you want it to apply.

Can I choose which loan products include credit life insurance?

Yes. Credit life insurance is configured at the product level, giving you full control over which of your loan products carry insurance coverage. This allows you to tailor your offering, for example, enabling insurance only on higher-value or longer-tenor loans where default risk is greater, while leaving short-term or low-value products without it. See: Configuring your loan product.

Borrower experience

Are borrowers notified when a credit life insurance policy is created for their loan?

Yes. Once a policy is created, which happens automatically at disbursement, the borrower receives an email with their coverage details. This ensures borrowers are aware of their insurance protection without any manual communication required from the lender.

How long must a borrower be unemployed before a job loss claim can be submitted?

There is a waiting period of three months of continuous involuntary unemployment before a job loss claim can be processed. This waiting period is designed to distinguish between temporary unemployment and genuine sustained income loss.

Claims processing

How do claims get processed when a borrower defaults due to a covered event?

To initiate a claim, the relevant supporting documents must be submitted. Claims are only settled within 48 hours of receiving a signed discharge voucher. A discharge voucher is a document that states the amount payable under the policy, the borrower or their representative must acknowledge and sign this form before the claim proceeds.

The documents required and claim treatment vary by event:

  • Death of the borrower: The outstanding loan balance is paid in accordance with the terms of the policy document.
  • Permanent disability: The outstanding loan balance is paid in accordance with the terms of the policy document.
  • Critical illness: The outstanding loan balance is paid in accordance with the terms of the policy document.
  • Involuntary job loss: A maximum of six months of loan repayments is covered, subject to the three-month waiting period, in accordance with the policy document.

How long does it take for claims to be settled?

Claims are settled within 48 hours of the insurance provider receiving a signed discharge voucher. The 48-hour clock starts only once the completed voucher, signed by the borrower or their authorised representative, is received. Ensure all required documentation is submitted at the same time to avoid delays.

What happens if a borrower defaults for a reason not covered by the insurance?

If a borrower defaults for reasons outside the scope of credit life insurance, the lender handles the default through standard recovery processes. This includes automated card and direct debit collection attempts, payment reminders, and penalty charges as configured in the loan product. These recovery actions are already built into Lendsqr’s platform and do not require manual intervention for each case.

Learn more

For more context on how credit life insurance works and why lenders use it, see:

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