Credit protection insurance industry
The CHOICE Shonky for Profit Protection Insurance goes to ... Credit protection insurance industry
You know when you sign up for a credit card and the provider tries to upsell you extra insurance? Offered by the likes of the Big Four banks and Citibank, it's called "credit protection cover", and it's supposed to cover your credit card, home loan or personal loan debt if disaster strikes and you can't make repayments. So, one less thing to worry about if you lose your job, get hit by a rampaging camel or die. However, with plenty of hidden catches and traps, our investigation of these services found they registered high on the Shonky barometer.
For a start, it's very expensive compared with life insurance or income protection insurance. That's despite the fact that only 15% of income from premiums is returned in claims payouts, compared with about 74% for other types of insurance. In all, less than 1% of people with this insurance make a claim and then, thanks to some pretty tight exclusions in the policy, 12% of these claims are rejected – a much higher rejection rate than for other types of insurance. Credit protection? Sounds like insurers are only protecting their massive profits.
Given the Consumer Credit Code has hardship provisions for personal disasters, consumers would be better off skipping this shonky credit protection insurance and talking to their lenders about a solution.