When you apply for a personal loan, mortgage or credit card, you may be offered consumer credit insurance. It offers poor value for money and you don't have to buy it.

How consumer credit insurance works

Consumer credit insurance (CCI) can provide some cover if:

• You can't meet the repayments because you lose your job, you are sick or injured, or you die.
• Your credit card is stolen.
• Goods you buy using your credit card or loan are damaged, lost or stolen.

Salespeople get a commission if you buy CCI. They may try to pressure you by offering CCI when you're trying to get credit or a loan. You do not have to buy it.

From 5 October 2021, salespeople can tell you about CCI when you apply for credit or a loan. But they must wait until four days after your credit or loan is approved before selling it to you. This gives you time to consider if you need it.

If they don't wait before selling it to you, you have the right to cancel the insurance and get a full refund.

Consumer credit insurance is poor value

A high number of CCI claims are denied or withdrawn. An ASIC review of CCI showed that:

• Only 11 cents was paid for every $1 paid in premiums for CCI sold with credit cards.
• Only 19 cents was paid for every $1 paid in premiums across all CCI products.

CCI payouts could be less than you expect. Your payout will be the amount you owe at the time of the insured event. This could be less than what you owe when you lodge the claim or it's approved.

CCI doesn't cover all the debt you owe. For example, policies that are sold with a credit card usually only pay out a percentage of the outstanding debt.

CCI may be extra insurance you don't need

You may already be covered if you have other insurance. For example:

• Life insurance or income protection insurance covers you for sickness, injury and death.
• Home, contents or comprehensive car insurance may cover goods you buy that are damaged, lost or stolen.

Questions to ask before buying CCI

• How much is the total policy cost?
  The salesperson might only tell you the cost per month.
• How much is the benefit under the policy?
  Consider whether the benefit matches the size of the debt. If the benefit is higher than the debt, you may be paying premiums for something you don't need.
• Will the insurance premium be added to my loan?
  Any interest you pay on the insurance premiums may add significantly to the cost of the product.
• What can I claim for?
  There may be limits to what the insurance covers. For example, most policies only cover involuntary unemployment (if you're fired or made redundant), not if you decide to resign.
• 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 limits on the amount and/or the duration of the claimable benefit?
  In some cases you're only paid a percentage of the outstanding balance and payments by instalment may stop after a limited time.
• Are there any conditions on making claims?
  You may have 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.

Make a claim on consumer credit insurance

Submit a claim as soon as possible

It's important to lodge a claim as soon as possible after the insured event. If you wait, there may be a gap between what your policy pays and the debt you owe.

Visit the National Debt Helpline website for steps to take to claim on consumer credit insurance.

Tell your insurer if you're in financial difficulty

If you urgently need payment, you can ask your insurer to:

• Fast track their assessment of your claim.
• Give you an advance payment within five business days of when you demonstrate your eligibility.

Ask your lender about a hardship variation. Ask them to postpone recovery action while they process your consumer credit insurance claim.

Complain about consumer credit insurance

Contact the provider's internal dispute resolution department if:

• you think the insurance was sold to you unfairly
• from 5 October 2021, the salesperson did not wait four days after your loan or credit was approved before selling you this insurance, or
• your insurer rejects your claim.

For tips on making a complaint, see how to complain.