Do I need personal loan insurance?
Taking out a personal loan can be a huge commitment and it can take several years to pay off depending on the loan term. You may be wondering whether it is necessary to take out insurance in the event of an unexpected loss of income.
Consumer Credit Insurance (CCI) is a type of supplemental insurance typically offered by lenders to protect borrowers when / when faced with an unexpected life event that prevents them from making their repayments – such as accident, illness, involuntary Unemployment, or death.
While it’s never a bad idea to think about how to protect yourself and your finances in the event that something inevitable should happen, when it comes to insurance, it’s always worth considering whether the benefits really outweigh the costs.
Sometimes consumers take out insurance for their peace of mind, but find that there are a significant number of circumstances in which they cannot make a claim. Unfortunately, often times once they are in a position where they need to make a claim, they find that they may not be eligible.
In fact, the Australian Securities and Investments Commission (ASIC) 2019 Review of the sale of CCI by 11 major banks and other lenders found out the “extremely poor price-performance ratio”.
According to the review, on all CCI products sold by lenders, consumers received only 19 cents in damages for every dollar of rewards paid.
Based on these findings, all four major banks have discontinued their personal loan insurance offers (an IHK product especially for private borrowers) for new customers.
There are some financial companies that may still offer some forms of CCI or credit protection insurance, but if you are still looking for this type of insurance, make sure you do your due diligence before purchasing any policy.
Questions to ask yourself before taking out insurance
Before getting any insurance, it is important that you know exactly what it covers so that you can make an informed decision as to whether it is worth it for you or not.
Consider asking the insurer the following questions about the policy:
- What does it cover?
- What are the exclusions?
- Are there any caps and / or limits on entitlement payments?
- Am I insured under my current employment contract?
- What happens if my employment contract changes?
- What is the total cost of the policy?
What other help is there?
If you find yourself in a situation where you cannot make your loan repayments and either do not have insurance or your insurance policy does not cover you, remember that help is available.
Consider reaching out to your loan provider as they may be able to offer financial assistance.
Additionally, the national debt helpline offers free financial advice that can help you get back on track.