Consumer credit insurance

Think twice before you buy consumer credit insurance

When you sign up for a loan or credit you may be offered consumer credit insurance. This is also sometimes called CCI or credit, loan or mortgage protection insurance.

Consumer credit insurance is not compulsory.  If you are interested in buying it, work out if it offers you real value for money.

What is consumer credit insurance?

Smart tip

You may already have consumer credit insurance but not know it. To check, contact your lender and ask for a copy of the contract. 

Consumer credit insurance provides some cover if you can't meet the repayments on your credit contract or loan because you lose your job, you are sick or injured, or you die.

Consumer credit insurance is usually offered as part of a mortgage, credit card or personal loan at the time the loan or credit contract is being approved, but can also be offered later. It may also include other types of cover including for situations when your credit card is stolen or when goods you have bought using your credit card or under another loan are damaged, lost or stolen.

Some things you should know about consumer credit insurance 

  1. If your claim is approved, the money is not paid to you - it's paid directly to your credit or finance provider.
  2. Some payments are made as lump sums (usually death benefits or total and permanent disability payments). Others are paid in regular instalments. Payments made in instalments often stop after a set period of time - you will have to make your own repayments after that.
  3. Many policies don't cover you for the full amount of your outstanding debt. For example, consumer credit insurance policies sold with credit cards usually only pay out a percentage of the outstanding debt.
  4. The payout amount is calculated according to the amount you owe at the time of the insured event (for example when you have an accident or lose your job) - not when you lodge the claim or when the claim is approved by the insurer. So for example any extra items you put on your credit card after the insured event occurs will not be covered by the consumer credit insurance policy.

What to ask before taking out consumer credit insurance

Questions for your credit provider or lender

Question Things to look out for

How much will the policy cost you?

Some lenders and credit providers will only tell you the cost per month. Ask what the full cost of the policy will be. 

How much is the benefit under the policy?

Consider whether the benefit under the policy matches the size of the debt - if the benefit is higher than the debt, you may be paying premiums for something you do not need.

Will the insurance premium be added to your loan?

If so, the interest you will have to pay on the insurance premiums may add significantly to the cost of the product. 

What would you be able to claim for?

There may be significant limits to what is covered. For example, most consumer credit insurance policies only cover you for involuntary unemployment (when you are fired or otherwise lose your job) and not when you decide to resign from your job.

Are there limits on the amount and/or duration of the claimable benefit?

You may only be paid a percentage of the outstanding balance and payments by instalment may stop after a fixed period. 

What are the policy exclusions?

For example, you may not be able to use the policy if you have a pre-existing medical condition, are above a certain age or are self-employed.

Are there conditions that you must satisfy in order to be eligible to make a claim?

For example, you may be required to work a set number of hours in order to meet the definition of 'employed'. There may also be waiting periods before you can make a claim.

 Questions for you to consider

Do you have other insurance which could cover your repayments?

If you have life insurance or income protection insurance (for example through your super fund) you may already have similar cover. 

Are there other insurance policies that would suit you better?

Take a look at our section on different kinds of insurance.

Cooling off period

If you have signed up for consumer credit insurance you can cancel the policy within the cooling off period and the premiums you have already paid will be refunded.

You can also cancel your policy after the cooling off period. You may still be entitled to a refund of your premiums depending on the policy and your reasons for cancelling.

How to claim on consumer credit insurance

It is important that you claim as soon as possible after the insured event. A delay in claiming may mean there is a gap between what your policy pays and the debt you owe. If so, you will be responsible for paying this gap.

You should claim by contacting your insurer, not your lender or the company that sold you the policy.

Don't be afraid to call your insurer to ask them questions about whether you can claim for something under your policy. 

The evidence that your insurer may require you to provide in order to support your claim may be difficult to obtain. Don't be afraid to speak to your insurer about alternatives particularly if you are having financial difficulties or problems obtaining the required documents.

Under the General Insurance Code of Practice, where you are in urgent financial need of benefits you can speak to your insurer to fast track the assessment and decision making for your claim, and ask for an advance payment within five business days of you demonstrating this. If you are in financial hardship, you should also contact your lender about entering into a hardship arrangement and ask them to postpone recovery action while your consumer credit insurance claim is being processed. 

If you are asked to regularly complete progress claim forms and you believe that your condition is permanent then you should make arrangements to provide your insurer with medical documents to make your insurer aware of this.

How to complain about consumer credit insurance 

If your insurer rejects your claim or if you wish to make a complaint, you should first contact your insurer's internal dispute resolution department

If your insurer maintains its rejection of your claim, your complaint remains unresolved for 45 days or it is not resolved to your satisfaction, you can lodge a dispute with the Financial Ombudsman Service online or by calling 1800 367 287.

Consumer credit insurance may sound like a good idea, but make sure you understand what you are agreeing to and that it is the best option for you.

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Last updated: 09 May 2017