CommBank to refund $16 million in dud insurance policies, is it time we scrap “junk” insurance?
Major bank CommBank will refund $16 million to its credit card and loan customers after it was revealed that they were sold policies they would not be able to claim on, due to their employment status, making them ineligible for a potential payout.
The so-called “junk” insurance has now forced the bank to stop selling its Credit Card Plus and Personal Loan Protection products and begin contacting customers eligible for a refund, which according to CommBank is an estimated 140,000 people.
Senior Executive, Matt Comyn has explained that the reason for the mixup was because of the inability to identify the right kind of customers for the products.
“We have found it hard to achieve the right balance between simplicity and accessibility on the one hand, and limiting the product to the right group of target customers on the other hand,” he said.
However, this isn’t the first time the bank has landed in hot water over selling ineffective products to customers.
Only last year, CommBank refunded $10 million to 65,000 students and unemployed customers, unable to claim on the same credit card insurance product, and it’s people like Gerard Brody, Chief Executive of the Consumer Action Law Centre who are fed up.
"The stories we've heard have been atrocious. People tricked into buying insurance, insurance slipped into paperwork without people's knowledge and thousands of dollars being taken from families for no benefit," he said in a recent Banking Day story.
“It’s time for others to follow suit and stop selling this rubbish. Consumer-credit insurance needs to be buried away.”
So with the news that many Aussies are being left out of pocket due to consumer-credit insurance, we thought it was a good idea to have a quick recap on what it actually is and whether it’s a policy worth its salt.
What is consumer-credit insurance?
Consumer-credit insurance is a type of insurance that will cover your credit card or loan repayments if you can’t pay them because of sudden illness, injury, unemployment or even if you pass away. These policies are usually offered when a customer takes out a home loan, credit card or personal loan.
How does consumer-credit insurance work?
If you need to make a claim on your consumer-credit insurance, it’s important that you do so as soon as possible. Waiting to lodge your claim may leave a gap between what you owe and the amount your insurer will pay. If this does occur, you will have to pay the ‘gap’ amount.
Once you submit a claim through your insurer and it’s approved, the money will not be paid to you, it will be paid directly to your credit provider.
Do I need consumer-credit insurance?
Like any insurance policy, it’s ultimately up to you to determine whether taking out consumer-credit insurance is worth it.
However, we should mention that one of the big confusions around consumer-credit insurance is its necessity, as many Aussies may already have an another type of insurance that could cover your credit card or loan repayments. This could be in the form of life insurance or income protection insurance, so it’s worth reading over your policy to double check what you are and aren’t covered for.
Is there anything else I should know about consumer-credit insurance?
There is a limit on the period of time you will be covered for, once this period ends, you will then be responsible for making repayments. We should also mention that the payout amount could be less than anticipated, as it is calculated with the amount you owe at the time, not when you submitted the claim.
Also, consumer-credit insurance typically will not cover all of your outstanding debt, it will only cover a percentage of it for a short amount of time, which is usually 3 months.
And just like the number of Aussies who will now receive a refund, there are many instances where you will not be able to make a claim because of policy exclusions, like a pre-existing medical condition, age or your employment status, so make sure you read the fine print before signing up.
So if you’ve got a balance still hanging around, it might be time to consider a balance transfer credit card. You can check out some of the latest offers on balance transfer cards by heading over to our credit card comparison tool.