Personal loan protection insurance explained

What is personal loan protection insurance?

Personal loan protection insurance is a type of consumer credit insurance (CCI). It’s optional, add-on insurance that’s sold alongside products like personal loans, credit cards and some home loans. It’s meant to help you cover your repayments on a loan in the event of:

• Serious illness or accidental injury
• Involuntary unemployment 
• Loss of life

Legally, consumer credit insurance can only be sold to you four days after you’re approved for a loan, to give you time to consider whether you need it.

Is personal loan protection insurance still sold?

Consumer credit insurance, including personal loan protection insurance, is technically still sold in Australia, but most major banks and lenders don’t offer it. It may still be offered by some brokers or specialised lenders. 

This is the result of a 2019 report by corporate watchdog ASIC, which found banks and lenders had consistently failed Australian consumers by selling "junk" consumer credit insurance products with little to no value.

While most providers have stopped selling CCI, it’s still important to check your contracts closely when taking out a loan, as you may still find it in the fine print.  

For example, if you finance a car through a dealership, the salesperson might offer you various add-on insurance products, like consumer credit insurance, guaranteed asset protection, or extended warranties, as part of the finance package. 

It’s easy to sign up for these by mistake when you are focused on buying the vehicle.

What should you watch out for with personal loan protection insurance?

ASIC’s report looked into 11 banks and lenders who sold consumer credit insurance, including personal loan protection insurance, over a period of eight years. The watchdog found “widespread failings” in the sector, noting that for every $1 spent in premiums in the sector, only 19 cents was paid out. The report also found that: 

• Policies were sold consumers who were ineligible to claim, or unlikely to benefit or need cover; 
• Lenders used pressure selling and unfair sales tactics;
• Consumers were incorrectly charged for insurance and claims were incorrectly denied; 
• Lenders had inadequate processes for consumers in hardship and trustees of deceased estates; and
• Customers received little or no value from consumer credit insurance products. 

As of 2022, ASIC had secured more than $270 million in repayments for consumers harmed by CCI products.  

Do you need personal loan protection insurance?

If you’re considering personal loan protection insurance when taking out a loan, there are some questions worth asking yourself:

• Are you eligible to claim? Some policies have strict eligibility criteria around age, employment type, hours worked, and residency. Common exclusions include seasonal or fixed-term contract workers, those with pre-existing medical conditions, self-employed workers, and anyone who resigns or takes voluntary redundancy. Check the Product Disclosure Statement (PDS) carefully before committing.
• Is it in your best interest? Sales staff can sometimes earn a commission if you buy CCI, so take the time to consider whether you genuinely need it. If you're worried about your capacity to repay a loan, consider seeking advice from a free financial counsellor via the National Debt Helpline.
• Does it represent value for money? These types of policies have provided poor value to customers historically. Also note that in most cases the payout goes directly to the lender, not to you, and payments may stop after a set period, leaving you to cover the repayments after that point.
• Are you already covered? If you have income protection insurance or life insurance, including through your super, you may already have protection that covers these circumstances, without needing to add another premium to your loan.

What can you do if you’ve been sold unwanted insurance? 

Unwanted add-on insurance is still a major issue for Australian consumers. The Australian Financial Complaints Authority (AFCA) received 7,880 complaints in 2024-25 regarding add-on insurance. Many of these disputes raised concerns about unfair sales practices, misleading product information, and poor product design.

You can take action if you think you were unfairly charged for personal loan protection insurance, if:

• you didn’t agree to it,
• you felt pressured,
• you were given misleading information, or
• the provider did not wait at least four days after your loan approval to sell it to you.

Your first step should be to contact the financial provider’s internal complaints team directly to ask for a resolution or a refund. If the lender rejects your complaint or knocks back a claim you believe is valid, you can escalate your case to AFCA.

Is personal loan protection insurance different from income protection insurance?

Yes, while both products are designed to provide a financial safety net if you can’t work due to an illness or injury, they work quite differently.

• Income protection insurance is designed to pay out a benefit if you’re unable to work for a period of time due to injury or illness. The benefit provided can generally be used to pay for groceries, bills or other expenses. Personal loan protection insurance is designed to assist specifically with loan repayments, not with other expenses.
• In most cases, the financial assistance provided by personal loan protection insurance is given directly to the lender, not to the borrower. Income protection insurance pays the benefit directly to you.
• Income protection insurance may be accessible directly, via a financial adviser or through your superannuation account, whereas personal loan protection insurance is only available for purchase directly from an insurer or your loan provider.

Need help to manage your debts?

If you are currently finding it hard to make your monthly loan payments, consider reaching out to your lender’s hardship team than looking for ways to borrow more money or purchase insurance. You can also call the National Debt Helpline on 1800 007 007 for free financial counselling to help you work through your situation.