Lenders slammed over credit insurance sales

Australians have been getting some bad deals on consumer credit insurance.

That warning has come from the Australian Securities and Investments Commission, which is commonly known as ASIC.

It follows a review of the way 15 Australian banks, credit unions, building societies and other financial institutions sell this kind of insurance.

Consumer credit insurance is designed to protect consumers if something happens to them that affects their ability to meet their credit repayments.

Typically, it covers consumers in the event of death, permanent disablement, or loss of income due to injury, illness or involuntary unemployment.

However ASIC Commissioner Peter Boxall warned that some of the ways in which consumer credit insurance has been sold produce poor results for consumers.

He said the study had identified several risks, including:-

• consumers not being made aware that they have purchased this kind of insurance or that it is optional

• consumers not being asked whether or not they wish to purchase it

• consumers not being eligible to claim on all parts of the insurance policy they have purchased

• the potential for consumers to be pressured or harassed by sales staff and

• consumers not understanding the cost or the duration of a policy.

The key message is that this type of insurance is optional, Dr Boxall said.

People should ask themselves ‘what would I be able to claim for’ and ‘what would the cost’, Dr Boxall said.

”Consumers should be aware that consumer credit insurance usually only covers some repayments on the insured debt.

“They should consider whether or not they already have insurance that would cover them in the same circumstances,” he added.

The institutions which took part in the study have agreed to review their sales practices.

Dr Boxall said some had already made “the necessary changes.”

He did not name the particular institutions.