Why credit card insurance isn't worth it

I signed up for credit card insurance when I applied for my credit card. It promised to pay my credit card debt if I fell ill, had an accident or lost my job. Now I have had an accident and can't work. When I tried to claim under the policy the insurer refused to pay out my credit card debt. What can I do?

This type of policy sounds terrific in the advertising material.

You are told that for a few cents per $100 of credit card debt you will be covered for all sorts of unforeseen horrors - like death, accident, illness and unemployment - that prevent you paying off your credit card debt.

The glib sell masks a hole-filled policy landscape. These policies are heavily sold because the salesperson gets a commission and the credit card insurer makes a lot of money from it because this type of policy hardly ever delivers what is promised.

Have I been conned?

Probably. The awful reality is that you have wasted money because, except in the event of death, the policy only ever meets minimum payments due on your card each month and then only for a restricted period.

If you haven't read your policy document carefully - and who can do that when sold something over the phone or as an adjunct to your credit card sign-up - you may find a raft of ways the insurer can refuse to pay your debt in the event of unemployment or accident, and do so legitimately depending on the tightness of definitions of events covered.

There are several types of credit card insurance cover. You may have signed up for a policy that only pays your credit card debt if you die, or that pays minimum payments due if you have a medical disability, or that pays minimum payments for a while if you are involuntarily unemployed. Careful reading of the policy fine print is a must.

These policies make bags of money for the insurers from the exclusions, conditions, waiting periods and deductibles. They may exclude death by suicide or old age.

Your disability may not be the type the insurer has in mind and the claim will have to be backed up by a host of medical tests and documents before a cent is paid.

Unemployment may not be covered by your policy, particularly if you are not in fulltime employment before becoming unemployed and are working only part-time or on a contract, or the insurer reckons you are not trying hard enough to find work.

Your accident may also not fall within the allowable accidents.

What is the regulator doing?

ASIC is currently conducting surveillance focusing on the handling of credit card insurance claims. It says it intends to work closely with the insurance industry to address issues.

Research, in other words. This research does not mean that you can take your CCI complaint to ASIC for action. It won't do anything about your complaint except perhaps include it in its research.

For action you have to take your complaint first to the insurer and then to the Financial Services Ombudsman if your dispute remains unresolved.

ASIC's findings so far include "there is significant room for improvement". Interim findings include that the benefits when paid were less than expected and were not made in a time frame consistent with credit card repayment due dates.

Consumers whose claims were denied generally felt that they were worse off making a claim, given the time, money and effort to complete forms and evidence their claims. They were upset they were sold a policy without being made aware at the time that important exclusions and conditions could apply to them.

Other findings were that consumers did not know how to make a claim or who to contact, often contacting the entity who sold them their policy and not the insurer. Most consumers did not make a claim promptly; some struggled with the claim assessment process.

This included completing long forms and providing documented evidence, such as medical certificates. The longer it took for a claim to be finalised the greater the financial impact this usually had on consumers.

Should I cancel the policy?

If you get nowhere with your complaint, yes, because the policy is a waste of money. If you die or are disabled you are covered by the insurances in your super scheme, or by separate death and disability policies.

These are cheaper and more reliable options for dealing with the adverse financial fallout of death, accident or illness. Put some money aside in a savings account every month for emergencies which prevent you meeting credit card bill obligations.

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