What Is Consumer Credit Insurance? - NerdWallet Australia

Consumer credit insurance (CCI), or loan protection insurance, protects people who can’t meet minimum credit repayments. Think of it as insurance for your debt, such as a credit card, personal loan, car loan or mortgage. It covers you if you’re sick, injured or unemployed and can’t meet your obligations.

It’s not to be confused with complimentary insurance provided by credit card companies. For example, Westpac’s Purchase Protection Insurance covers loss, theft or accidental damage on new items purchased with your credit card. CCI is also separate from the insurances offered through most superannuation funds — such as Life Cover, Total and Permanent Disability (TPD), and Income Protection Insurance.

CCI is a specific type of insurance for debt that consumers can take out when taking on credit, such as when entering a loan. By law, the salesperson has to wait four days after it’s approved to offer CCI. There are recent cases of banks pressuring consumers to take out CCI. They did so assuming that CCI was mandatory — but it’s not.

CCI is sold by insurance companies, banks (via their insurance partners), financial lenders and third-party websites.

What does consumer credit insurance cover?

CCI provides some cover for unplanned instances where you can’t repay your debt, including:

Involuntary unemployment
Terminal illness
Disability
Death.

It works like any other insurance — you open a policy and pay a monthly premium. On paper, it sounds great to have this added protection and peace of mind. However, in reality, the coverage isn’t dollar-for-dollar.

Types of consumer credit insurance

CCI can cover various types of debt obligations and goes by names including:

Personal loan insurance
Credit card insurance
Mortgage insurance
Car loan insurance
Redundancy insurance.

Is CCI required? How is it regulated?

CCI is not required, mandatory or necessary. You might have adequate or comparable coverage already through other policies, such as superannuation, car insurance or home and contents insurance.

The Australian Securities and Investments Commission (ASIC) even warns against getting CCI, stating it’s “poor value,” with a high number of denied claims. Also, CCI marketing can be misleading, as the policies don’t usually cover all the debt owed — instead, just a percentage. In fact, ASIC found that customers who took out CCI with credit cards received only 11c for every $1 paid in claims.

CCI is regulated by the National Credit Code, which is controlled by ASIC.

CCI costs and claiming process

The lender outlines the policy term, cost, inclusions, limitations and claiming process. The premium is usually a monthly fee, paid every month over the life of the loan. CCI insurance premiums are expensive and could add thousands of dollars to your monthly repayments and interest charges.

If you have CCI, you can file a claim when one of the outlined events occurs (accident or sickness, disability, unexpected job loss or death). To do that, follow these steps:

Reach out to the insurer, not the lender. For example, you’d get CCI through Allianz, not Westpac. Lodge your claim as soon as possible to avoid missing any payments.
Prepare the necessary documents (employment letters, medical records, death certificates, etc.) and lodge your claim.
Get everything in writing and read the Product Disclosure Statement. If they refuse your claim without citing clear reasons, you can get free legal counsel.
If you plan to dispute it, inform them and contact the Australian Financial Complaints Authority (AFCA).
Access free, confidential financial hardship support via the National Debt Helpline. They can guide your next steps, including applying to the tribunal for consumer claims in your state.

» MORE: How does debt consolidation work?

Is CCI worth it?

For most people, CCI isn’t worth the money. If you pay your bills on time, keep an emergency fund and already have various insurance policies (home, car, health, superannuation), CCI probably isn’t necessary.

Pros

CCI might provide some protection and peace of mind for people
ASIC regulates it
It covers various scenarios and unforeseen events, from health to employment-related.

Cons

The benefit might not match the size of the debt
Higher monthly repayments and added stress
Stipulations and limits on coverage — check the T&Cs
Small pay-out for claims (not dollar-matched) — customers only receive approximately 11c to the dollar.

Alternatives

First, see what your other insurance policies already cover. Then, talk to your superannuation provider to compare their policies and prices. AustralianSuper, for example, negotiates discounted bulk insurance rates for members and can offer multiple types of coverage for less than $5 per week.

List all your outstanding debts and call each lender to discuss the terms and conditions of each product. Know what would happen if you’re unable to pay your credit card, personal loan, car loan or mortgage. There may be other protections available to you beyond CCI insurance.

Revisit your budget each month so you know your incomings and outgoings. Consider creating a bank account ‘bucket’ for each debt and put a percentage of your pay into each account. Calculate the percentage of each debt in relation to your income. If possible, renegotiate better terms with your biggest debts. Do this annually to secure the best deals.

» MORE: Credit card debt in Australia

There was a case against CommBank, which was settled in September 2023. It was in relation to CBA CreditCard Plus Insurance and CBA Personal Loan Protection, which customers paid into under the assumption the policies were mandatory. The lawsuit found these policies had “little or no value, and these two products are no longer offered to consumers. Similar insurances at Westpac have also been removed.

In 2019, Allianz issued more than $8 million in refunds for CCI premiums and fees after using “unfair practices” to attract customers.

Salespeople earn a commission on all new CCI policies. However, they must wait until four days after your credit or loan product is approved before selling it. If they fail to wait the four days, you can cancel the insurance and get a full refund.