02.How much does it cost?
Credit card protection insurance: You usually pay a percentage of your credit card balance. ANZ CreditCover Plus charges 0.79%, which is about $237 per year if you spend $2500 per month on your card, for which you receive only very little cover.
Home loan insurance: The premium is calculated as a percentage of your loan balance, which varies depending on your age. With CBA, for a $500,000 home loan over 25 years, if you’re 49 years old and take cover for death, terminal illness, trauma, unemployment and disablement you pay $4680 per year for the life of the loan. This compares with an average premium amount of about $1090 through industry super funds for $500,000 life insurance (which usually includes terminal illness cover) combined with $75,000 income protection insurance ($3125 per month for up to two years).
Personal loan protection insurance: Premiums depend on variables, including loan term and amount. With Westpac, if you take out a $16,000 secured car loan over seven years you would pay $1542. The premium will be added to the loan itself, so you pay interest on it and your minimum loan repayments increase. At an interest rate of 8.49%, for example, you end up paying $2053.
Does it cover your needs?
In many cases, credit protection won’t cover your needs: depending on your card balance or loan amount, the cover amounts may be too small to make a difference, see the Credit Card Protection Insurance table, above. If you want to provide for your dependants, simply covering your debt is usually not enough as you would need to cover other expenses, such as your children’s education.
Only unemployment cover is exclusively available with credit protection – but it usually only covers repayments for a few months, not your living expenses.
Instead of taking out insurance at the start of the loan, make sure you don’t overcommit and talk to your lender if you become unemployed or sick. The Consumer Credit Code has hardship provisions and your lender should try to find a solution for you.