Consumer credit insurance

Think twice before you buy consumer credit insurance

You may be offered consumer credit insurance when you sign up for a loan or credit card. Consumer credit insurance is also known as CCI or credit, loan or mortgage proctection insurance.

Consumer credit insurance is not compulsory, so before you sign up work out if it offers you real value for money.

What is consumer credit insurance?

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. 

Smart tip

You may already have consumer credit insurance. To check, contact your lender and ask for a copy of the contract.

Consumer credit insurance is usually offered as part of a mortgage, credit card or personal loan at the time the loan or credit card contract is being approved, but can also be offered later.

CCI may also provide other types of cover, including for situations such as 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.

How does consumer credit insurance work?

Before taking out consumer credit insurance, there are a number of things to be aware of:

  • If your claim is approved, the money is not paid to you - Any approved claims are paid directly to your credit or finance provider.
  • Payments are either a lump sum or paid in instalments - Death benefits or total and permanent disability payments are usually paid in a lump sum. Payments made in instalments often stop after a set period of time - you will have to make your own repayments after that.
  • CCI does not cover all outstanding debt - For example, policies that are sold with a credit card usually only pay out a percentage of the outstanding debt.
  • Payout amount could be less than you think - Your payout is calculated according to the amount you owe at the time of the insured event not when you lodge the claim or when it's approved by the insurer.  This means any extra items put on your credit card after the insured event (for example when you have an accident or lose your job), will not be covered by the consumer credit insurance policy.

What to ask before taking out consumer credit insurance

Here are some questions to ask your credit provider or lender before buying consumer credit insurance:

  • How much will the policy cost? 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 my loan? If the answer if yes, the interest you'll have to pay on the insurance premiums may add significantly to the cost of the product.
  • What can I claim for? There may be significant limits to what is covered by consumer credit insurance. For example, most policies will 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 the duration of the claimable benefit? In some instances 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? There are situations where 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 any conditions on making a claim? There may be cases where you are required to work a set number of hours in order to meet the definition of 'employed'. There may also be waiting periods that apply before you can make a claim.

Things to consider before taking out consumer credit insurance

You may already have another type of insurance that could cover your repayments. For example, if you have life insurance or income protection insurance through your super fund you may not need CCI.

You should also consider if there's another type of insurance that meets your needs. Take a look at our section on different kinds of insurance.

Cooling off period

If you've 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's important to lodge a claim as soon as possible after the insured event. If you wait, it 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.

To lodge a claim, contact the insurer, not the lender or the company that sold you the policy. Don't be afraid to call the insurer to ask them questions about whether you can claim for something under your policy.

What to do if you are experiencing financial difficulty

Under the General Insurance Code of Practice, if you're in urgent financial need of payment you can speak to your insurer and ask them to fast track the assessement and decision making for your claim. You can also ask for an advance payment within five business days of you demonstrating your eligiability.

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.

See trouble with debt for more informatin about applying for hardship.

Providing evidence for a consumer credit insurance claim

If you are having difficulty getting the evidence you need to make a claim, don't be afraid to speak to your insurer.

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 Australian Financial Complaints Authority (AFCA) online or by calling 1800 931 678.

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: 28 Nov 2018