Improving Credit Life Microinsurance

Credit life cover – insurance that covers the outstanding principal and interest of a loan on the death of a borrower – is the logical starting point for organizations new to microinsurance, because it is generally easy to introduce, simple for borrowers to understand, and seen by financial intermediaries as a support to their core business. Credit life can help create an understanding of microinsurance and expand demand by building an insurance culture. When borrowers see benefits from such products, it makes them more receptive to other insurance products.

Unfortunately, credit life insurance is often designed poorly and provides little value to clients and their beneficiaries. When products provide little value to clients, they reinforce a common negative attitude towards insurance. Thus, improving the value of credit life products may improve clients’ attitudes towards insurance, and in turn, improve overall demand for microinsurance.

To understand the status of credit life microinsurance, and to formulate ways to improve the overall quality of credit life products, this paper responds to the following questions:

1. What is credit life insurance and how is it structured?
2. Who benefits from this coverage: borrowers, lenders and insurers?
3. How is good value for clients measured, and is it achieved?
4. What are examples of credit life products that provide value to clients?
5. How might credit life products be expanded or adjusted to offer greater value to clients?
6. What operational considerations are necessary to improve credit life products?

This paper addresses these questions primarily using the authors’ years of experience in working with numerous credit life products. Additionally, to build a pool of similar data, a survey of credit life products was conducted with thirty selected organizations.