Spotlight on Consumer Credit Insurance: The Reality

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Got a credit card? A mortgage? A business loan that keeps your lifestyle ticking? Most of us do. And many of us might also have been sold something called Consumer Credit Insurance — it may have been up sold as an addition to a loan for a car.

You may already have Consumer Credit Insurance. You may also not need it. Essentially a protection against unforeseen circumstances preventing loan repayment, independent Consumer Credit Insurance does have its place — it is crucial to have measures set into place so that should life take a twist and turn, all debts continue to be paid. However, there are different avenues through which the concept of CCI can be obtained.

The issue of unnecessary targeting for potential CCI candidates flew under the radar with Australian Securities and Investments Commission until 2017 when ASIC’s bank audit highlighted CCI as a primary area driving customer complaints. Many consumers haven’t been aware that they’ve been paying additional premiums for CCI, while their existing cover may already protect their interest. It’s also a notoriously complex process to file successful claims and many consumers are never granted payments after lengthy claim processes.

In response to the overwhelming poor experience, ASIC has brought together banking professional and consumer advocates to establish the CCI Working Group, which will review and drive reform.

With change under way, we’d like to bring you into the light.

What is Consumer Credit Insurance?

Typically, CCI covers loan payments when events prevent payment — in the event of death, permanent disability or loss of income due to injury, illness or involuntary unemployment. Your CCI policy may cover repayments over a period of time, or it may cover the outstanding balance in a lump sum.

If a claim is approved, the insurer pays the money to the lender which may be a lump sum or contribute to monthly payments depending on the type of cover.

CCI may also include merchandise protection cover, which covers damage, loss or theft of merchandise purchased with the loan product. It can also include stolen credit card cover, which provides a lump sum benefit if your credit card is stolen.

Many Alternatives to CCI 

  • You do not need CCI if you have life insurance through your super fund — that will cover debts and loans in the event of death.
  • Payments from standard life insurance can be used to pay off debts and loans — life insurance payments will be constant and go directly to beneficiaries; CCI payments will be paid directly to your lender and will reduce as the debt reduces.
  • If you’ve accrued sick leave, your salary may be covered. If you have accrued sick leave from years of employment with your employer, your sick leave entitlements paid as your normal salary would provide the ongoing income to meet your loan commitments.
  • Consider income protection insurance — it is often cheaper than CCI and does not have the same restrictions and limitations that lead to many rejections of CCI claims.

Know Your Rights:

If your insurer rejects your claim or you feel you’ve been unethically treated by your CCI provider, contact:

  • Your CCI provider’s internal dispute resolution department to lodge an official complaint.
  • Use this Demand A Refund tool to apply for a refund for coverage you’ve paid unnecessarily
  • If your complaint is unresolved for 45 days or your claim is rejected of your claim, you can lodge a dispute with the Australian Financial Complaints Authority online.

How to Buy Smartly: If you don’t have any or sufficient life cover protection, or you do not have any accrued sick leave in your employment then maybe CCI cover has its place for you to consider.

If CCI is for you, Money Smart recommends asking these questions of your credit provider or lender:

  • 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.
  • 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).
  • 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.
  • What are the policy exclusions? Some pre-existing medical conditions exclude consumers from CCI policy protection. There are also age limits and exceptions based on employment status — self-employment may rule out CCI security.
  • What are the conditions on making a claim? There may be employment requirements — a certain number of hours worked, for example — and waiting periods that apply before you can make a claim.

To find out how we can help your business, contact us today.

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