Claudette Saint-Reid

Claudette Saint-Reid, Country Manager for Sagicor’s life operations in the Cayman Islands, explains the ins and outs of creditor life insurance.

Creditor group life insurance provides coverage for persons who have become indebted to a creditor under an agreement reached to repay the debt according to a fixed plan.

The main purpose of the insurance coverage is to ensure that the debt will be liquidated in the event of the death of the debtor prior to being fully repaid.

This provides a two-fold benefit. The creditor will not be forced to seek restitution of the loan amounts outstanding and the debtor’s beneficiaries will not be forced to bear the additional burden of the debt, or loss of the tangible asset against which the loan is pledged.

The insurance policy is a contract between the insurer and the company/lending institution where the insured is the debtor, and the owner has the right to utilise the proceeds of the insurance policy to clear the debt prior to full repayment in the event of the death of the debtor.

The amount and duration of insurance taken on the life of the debtor is determined by the creditor, based on the agreement reached between both parties.

Consumer loans, mortgages, credit card balances and loan consolidation are some of the debts that can be covered under group creditor insurance plans.

These policies usually have coverage limits, and persons qualifying under the underwriting rules will be covered as soon as the loans are approved and the premiums paid by the company/lender for the amount requested in a simplified application form.

In some plans, No Evidence Limits (NEL) are established. These are limits imposed based on the demographics of the scheme, the level of participation anticipated, and the average or mean amounts borrowed. The NEL thus allows for immediate issue of insurance coverage on signing of the loan agreement up to a certain amount.

The usual suicide clause is also included, but there are few other limitations besides the requirement that the insured must be able to conduct the business transaction with the lender in person, and be less than a particular age, commonly 60 or 65 years at the time of entry into the plan.

Some of these contracts also have profit-sharing arrangements that are beneficial to the creditor in cases where claims are not made against the policy for a stated period of time. The requirements for processing these claims are very straight forward - the policyholder, being the beneficiary, provides the information necessary, and will usually have the systems in place to access the requirements. These are as follows:

- Proof of death of the insured (death certificate, and post-mortem report if necessary)

- Proof of loan agreement with the creditor

- ‘Trial balance’ to show the amounts outstanding as well as any payments in default

The law requires that any amounts that are in excess of the loan balance should be paid to the beneficiary of the insured or his estate.

One final note: Group creditor life is an efficient way of mitigating risk for both the creditor and the debtor.

Claudette Saint-Reid has been the Country Manager for Sagicor’s life operations in the Cayman Islands since October 2005. She has more than 21 years combined management experiences in the life insurance and telecommunications. She is a registered nurse, and holds a bachelor of science degree in management and a master’s degree in business administration from the University of the West Indies. She also holds a post-graduate diploma in Management from the Wharton School of Business.