Loan protection, often called credit-life cover, clears a member's outstanding loan if they die or become permanently disabled. It protects the borrower's family and your SACCO's loan book at the same time.
Why it matters: When a borrower dies, the loan does not. Without cover, the debt falls on grieving relatives or becomes a loss the SACCO must absorb.
What loan protection does
Pays off the outstanding loan balance if the borrower dies during the loan term.
Usually covers permanent disability too, when the borrower can no longer earn.
Releases the family from a debt they did not take on.
Keeps the loan from becoming a bad debt that eats into members' savings.
How premiums work
The premium is a small percentage of the loan, often a fraction of one percent.
It is commonly added to the loan or deducted at disbursement, so it is paid up front or spread across repayments.
Larger or longer loans cost more to cover, because the risk is higher.
Keep the cost clear and transparent to members.
Self-insured fund vs an external insurer
Self-insured fund: the SACCO collects premiums into its own protection fund and pays claims from it. Simple and keeps the money in-house, but a run of big claims can drain it.
External insurer: you pay premiums to an insurance company that carries the risk. Costs more per loan, but large or unexpected claims are not your problem.
Many SACCOs start self-insured and move to an insurer as their loan book grows.
In CAMS, the protection premium can be handled as part of the loan setup so it is never missed.
Quick checklist
[ ] Every eligible loan carries protection cover
[ ] Cover includes death and permanent disability
[ ] Premium rate is set, transparent, and applied consistently
[ ] You have chosen self-insured fund or external insurer deliberately
[ ] A self-insured fund is monitored so it can meet claims
[ ] Claims are paid promptly when a member dies or is disabled
