Do i need personal loan insurance?
Taking out a personal loan can be a big commitment and repayment can take several years depending on the length of your loan. So, you may be wondering whether it is necessary to take out insurance to cover you 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 credit borrowers if / when they are faced with an unforeseen life event that prevents them from making their repayments – such as accident, illness, involuntary unemployment. , or death.
While it is never a bad idea to think about how to protect yourself and your finances should something inevitable happen, when it comes to insurance it is always worth asking yourself. if the benefits really outweigh the cost.
Sometimes consumers can purchase insurance for their peace of mind, but they find that there are a significant number of circumstances in which they are not able to make a claim. Unfortunately, it is often once they are able to make a claim that they realize that they may not be eligible.
In fact, the Australian Securities and Investments Commission (ASIC) 2019 review of the sale of CCIs by 11 major banks and other lenders found it to be “extremely poor value for money.”
According to the review, for all CCI products sold by lenders, consumers received only 19 cents in claims for every dollar paid in premiums.
As a result of these findings, the Big Four banks stopped offering personal loan protection insurance (an CCI product available specifically to personal loan borrowers) for new customers.
Some finance companies may still offer some form of CCI insurance or loan protection, but if you are still looking for this type of insurance, be sure to do your due diligence before purchasing a policy.
Questions to ask yourself before purchasing insurance
Before purchasing an insurance policy, it is important to understand what it covers so that you can make an informed decision on whether it is worth it for you.
Consider asking the insurer the following questions about the policy:
- What does it cover?
- What are the exclusions?
- Are there ceilings and / or claims payment limits?
- Am I covered by my current employment contract?
- What happens if my employment contract changes?
- What is the total cost of the policy?
What other help is available?
If you find yourself in a situation where you can’t pay off your loan and you don’t have insurance or your insurance policy doesn’t cover you, remember that help is available.
Consider contacting your credit provider, as they may be able to help you with financial difficulties.
Plus, the National Debt Helpline offers free financial advice that can help get you back on track.