Credit protection insurance sham

Credit protection insurance makes an easy dollar for lenders and insurers, but for consumers there are far smarter options.
 
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01 .Introduction

Toy house & car

In brief

  • Credit protection is a largely hidden insurance, which covers your debt and repayments if you die, become sick or lose your job.
  • CHOICE found credit protection insurance is disproportionately expensive compared with life insurance.

In this era of financial uncertainty, an insurance that at first glance seems cheap, convenient and promises to cover your loan repayments against potential disasters such as unemployment or sickness appears too good to be true. Unfortunately, CHOICE has found it really is. Our investigation concludes that credit protection insurance is a rip-off, as other options give you far better and cheaper cover.

Please note: this information was current as of March 2009 but is still a useful guide to today's market.


What is credit protection insurance?

Credit protection insurance (also called consumer credit insurance) covers your credit card, home loan or personal loan debt and repayments in the event of your death, terminal illness, disablement or unemployment. It is generally available with a mortgage, personal loan or credit card, is optional and in no way connected to mortgage insurance, which is usually compulsory if you have a home loan deposit of less than 20%.

It tends to be offered as a package, such as combined disablement and unemployment covers. If your claim is accepted, your debt is usually covered in the case of death or terminal illness and the repayments for disablement or unemployment. However, there are plenty of hidden catches and traps.

Why is credit protection a rort?

  • It’s very expensive: for a similar premium you can buy $500,000 life insurance or credit protection insurance worth only $2500. The life insurance policy would leave your family 200 times better off in the case of your death.
  • Only 1% of policyholders make a claim, compared with 13% of car insurance and 9% of sickness and accident insurance policyholders.
  • About 12 out of 100 claims are rejected, which is much higher than most other insurance options.
  • Only 15% of premiums income is returned in claims payouts to policyholders. This makes it very profitable for insurers and lenders who usually receive a 20% commission.
  • Other types of insurance on average use 74% of premiums for claim payouts to policyholders.

CHOICE verdict

There are about one million expensive and, in many cases, unsuitable credit protection policies. For most people, credit protection may not cover your needs and is usually more expensive than other insurance options. There are much smarter options to make sure you’re covered if something unexpected happens.

It is essential to have an emergency fund; if you have children or other dependants, think about how much money would be needed in the event of your death to cover their education and other needs. Usually the cheapest way to do this is to take out life insurance through your super fund. Also consider income protection insurance, trauma and total and permanent disability insurance, which cover you in the event of an illness, accident or disability.

 
 

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John's opinion:

  • Member since: 02 Jul 13
  • 4 Comments
  • 1 Replies
 
User Profile

6 MONTHS AGO | Ditto re the lightness of the article. There are several websites ranking on google that are not covered. And I would appreciated Choice doing what I quickly do to estimate coverage, i.e. using narrow criteria such as an exact age and height to get a count of all members of that subset within n km of a particular locality, which allows accurate extrapolation. Choice could then follow through by paying to contact a small percentage of members to check that they are real currently active individuals; this would be expensive for large numbers, but could check if the smaller websites are stuffing their database with fake accounts. This is the sort of stuff I would expect a consumer watchdog to do, instead of relying on the websites' reported figures.

An analysis of photos could figure out how many people use more than one website - there is nothing wrong with doing so, but it can mean that there is little point re being active on the smaller sites. You could also give more of a run down on demographics - e.g. RSVP seems more white collar, seemed OKcupid more blue collar. Personally, I've given up on PlentyOfFish, OKcupid (although I really like its concept), and eHarmony - they just didn't have who I wanted. The price of an RSVP stamp seems to dissuade time-wasting. The fact that they are cheaper in bulk perhaps encourages people to stay with the one account rather than proliferate accounts, which hopefully encourages honesty. RSVP seems to have won the critical mass war, although I could well imagine new paradigms such as enforcing honest self representation could allow market shifts. Thanks to Jane for raising iqcatch.com - I also noticed relationships.answers.com/adult-singles-dating/intelligence-based-dating-sites-for-mensa-minds has stuff on niche sites. Given that the wikipedia page listing dating sites seems to be dominated by vested interests, it would be great if Choice could provide moderation of members' reported experiences.

Another useful thing Choice could do is survey a representative sample of the population re their experiences, and report that.

Personally, I have found internet dating to be great - you get to think about compatibility before physical sexual attraction shuts down one's brain, so it has many of the advantages of the arranged marriages that have so long been the norm in most of the world. It might even lower the divorce rate. Reproduction is up there on Maslow's only shortly after oxygen, so it would be great if Choice could help us all do it more intelligently.

 

 
 

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Sarah's opinion:

  • Member since: 18 Feb 12
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6 MONTHS AGO | To be honest, I was expecting a little more from Choice than just a rundown of the prices and a few opinions or case studies. How about some thoughtful criticism?

 

 
 

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ileneni's opinion:

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7 MONTHS AGO | I met my husband via internet dating. And I know other 7 steady couples that have met that way (5 mid 30's & 2 over 50's). I suppose the stigma is fading out. We now find houses, jobs and goods online. So it only makes sense. Having said that, I did meet someone who was lying and was actually married. Very sad as her wife called me so I was honest with her. So overall a good experience but 1 in 4 is dodgy but you just move on. My guess is in a pub 3 out of 4 is dodgy so my take is you are better off with internet dating.

 

 
 

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Michael Camilleri's opinion:

  • Member since: 28 Jun 13
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4 YEARS AGO | It's entirely clear here that $name is a very important thing. I just believe the review could have entailed a little more information. lol ;)

 

 
 

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John's opinion:

  • Member since: 02 Jul 13
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6 MONTHS AGO | Ditto re the lightness of the article. There are several websites ranking on google that are not covered. And I would appreciated Choice doing what I quickly do to estimate coverage, i.e. using narrow criteria such as an exact age and height to get a count of all members of that subset within n km of a particular locality, which allows accurate extrapolation. Choice could then follow through by paying to contact a small percentage of members to check that they are real currently active individuals; this would be expensive for large numbers, but could check if the smaller websites are stuffing their database with fake accounts. This is the sort of stuff I would expect a consumer watchdog to do, instead of relying on the websites' reported figures.

An analysis of photos could figure out how many people use more than one website - there is nothing wrong with doing so, but it can mean that there is little point re being active on the smaller sites. You could also give more of a run down on demographics - e.g. RSVP seems more white collar, seemed OKcupid more blue collar. Personally, I've given up on PlentyOfFish, OKcupid (although I really like its concept), and eHarmony - they just didn't have who I wanted. The price of an RSVP stamp seems to dissuade time-wasting. The fact that they are cheaper in bulk perhaps encourages people to stay with the one account rather than proliferate accounts, which hopefully encourages honesty. RSVP seems to have won the critical mass war, although I could well imagine new paradigms such as enforcing honest self representation could allow market shifts. Thanks to Jane for raising iqcatch.com - I also noticed relationships.answers.com/adult-singles-dating/intelligence-based-dating-sites-for-mensa-minds has stuff on niche sites. Given that the wikipedia page listing dating sites seems to be dominated by vested interests, it would be great if Choice could provide moderation of members' reported experiences.

Another useful thing Choice could do is survey a representative sample of the population re their experiences, and report that.

Personally, I have found internet dating to be great - you get to think about compatibility before physical sexual attraction shuts down one's brain, so it has many of the advantages of the arranged marriages that have so long been the norm in most of the world. It might even lower the divorce rate. Reproduction is up there on Maslow's only shortly after oxygen, so it would be great if Choice could help us all do it more intelligently.

 

 
 

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Sarah's opinion:

  • Member since: 18 Feb 12
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6 MONTHS AGO | To be honest, I was expecting a little more from Choice than just a rundown of the prices and a few opinions or case studies. How about some thoughtful criticism?

 

 
 

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ileneni's opinion:

  • Member since: 28 Feb 14
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7 MONTHS AGO | I met my husband via internet dating. And I know other 7 steady couples that have met that way (5 mid 30's & 2 over 50's). I suppose the stigma is fading out. We now find houses, jobs and goods online. So it only makes sense. Having said that, I did meet someone who was lying and was actually married. Very sad as her wife called me so I was honest with her. So overall a good experience but 1 in 4 is dodgy but you just move on. My guess is in a pub 3 out of 4 is dodgy so my take is you are better off with internet dating.

 

 
 

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Michael Camilleri's opinion:

  • Member since: 28 Jun 13
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4 YEARS AGO | It's entirely clear here that $name is a very important thing. I just believe the review could have entailed a little more information. lol ;)

 

 
 

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John's opinion:

  • Member since: 02 Jul 13
  • 4 Comments
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User Profile

6 MONTHS AGO | Ditto re the lightness of the article. There are several websites ranking on google that are not covered. And I would appreciated Choice doing what I quickly do to estimate coverage, i.e. using narrow criteria such as an exact age and height to get a count of all members of that subset within n km of a particular locality, which allows accurate extrapolation. Choice could then follow through by paying to contact a small percentage of members to check that they are real currently active individuals; this would be expensive for large numbers, but could check if the smaller websites are stuffing their database with fake accounts. This is the sort of stuff I would expect a consumer watchdog to do, instead of relying on the websites' reported figures.

An analysis of photos could figure out how many people use more than one website - there is nothing wrong with doing so, but it can mean that there is little point re being active on the smaller sites. You could also give more of a run down on demographics - e.g. RSVP seems more white collar, seemed OKcupid more blue collar. Personally, I've given up on PlentyOfFish, OKcupid (although I really like its concept), and eHarmony - they just didn't have who I wanted. The price of an RSVP stamp seems to dissuade time-wasting. The fact that they are cheaper in bulk perhaps encourages people to stay with the one account rather than proliferate accounts, which hopefully encourages honesty. RSVP seems to have won the critical mass war, although I could well imagine new paradigms such as enforcing honest self representation could allow market shifts. Thanks to Jane for raising iqcatch.com - I also noticed relationships.answers.com/adult-singles-dating/intelligence-based-dating-sites-for-mensa-minds has stuff on niche sites. Given that the wikipedia page listing dating sites seems to be dominated by vested interests, it would be great if Choice could provide moderation of members' reported experiences.

Another useful thing Choice could do is survey a representative sample of the population re their experiences, and report that.

Personally, I have found internet dating to be great - you get to think about compatibility before physical sexual attraction shuts down one's brain, so it has many of the advantages of the arranged marriages that have so long been the norm in most of the world. It might even lower the divorce rate. Reproduction is up there on Maslow's only shortly after oxygen, so it would be great if Choice could help us all do it more intelligently.

 

 
 

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Sarah's opinion:

  • Member since: 18 Feb 12
  • 3 Comments
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6 MONTHS AGO | To be honest, I was expecting a little more from Choice than just a rundown of the prices and a few opinions or case studies. How about some thoughtful criticism?

 

 
 

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ileneni's opinion:

  • Member since: 28 Feb 14
  • 1 Comments
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User Profile

7 MONTHS AGO | I met my husband via internet dating. And I know other 7 steady couples that have met that way (5 mid 30's & 2 over 50's). I suppose the stigma is fading out. We now find houses, jobs and goods online. So it only makes sense. Having said that, I did meet someone who was lying and was actually married. Very sad as her wife called me so I was honest with her. So overall a good experience but 1 in 4 is dodgy but you just move on. My guess is in a pub 3 out of 4 is dodgy so my take is you are better off with internet dating.

 

 
 

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Michael Camilleri's opinion:

  • Member since: 28 Jun 13
  • 5 Comments
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User Profile

4 YEARS AGO | It's entirely clear here that $name is a very important thing. I just believe the review could have entailed a little more information. lol ;)

 

 
 

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