Personal loan protection insurance explained
If you’re concerned you may be unable to make personal loan repayments in the future, you might consider personal loan protection insurance. There are, however, risks to be aware of.

If you’re concerned you may be unable to make personal loan repayments in the future, you might consider personal loan protection insurance. There are, however, risks to be aware of.
A personal loan can broadly assist you to help cover one-off purchases or expenses—everything from buying a car to paying off a holiday or consolidating your debts. But they also come with fees, usually requiring you to pay off the amount owed within a specific timeframe with associated interest, and if you miss or are late with your repayments it can impact your credit score.
You have a variety of options if you are unable to meet loan obligations due to reasons beyond your control. For example, if you’re experiencing financial hardship you might discuss your options with your lender. You can also seek professional advice from a financial counsellor through the National Debt Helpline (NDH) on 1800 007 007, or a financial adviser.
Personal loan protection insurance, also known as consumer credit insurance (CCI), is another option you might consider in advance of such a situation, but there are some important caveats and risks to be aware of. The Australian Securities and Investments Commission (ASIC) has been heavily critical of this type of insurance. At the time of writing, several major banks have agreed to settlements with their customers as part of class action lawsuits surrounding CCI. As a result of this, Australia’s big four banks (ANZ, Commbank, NAB and Westpac) no longer offer this type of insurance.
What is personal loan protection insurance?
Personal loan protection insurance or consumer credit insurance can help cover the costs of your loan repayments when unexpected circumstances occur, such as being unable to work due to illness or injury. This insurance is optional and can be purchased four days after your personal loan is approved, says the Federal Government’s MoneySmart website.
ASIC has been critical of this type of insurance. It has been described as a low-value product, with criticisms from the regulator including that it has been sold to customers “without their knowledge or consent”, with “pressure tactics and harassment” even being used, along with “misleading representations” to induce purchasing.
What does personal loan protection insurance cover?
Depending on the policy you select and your personal circumstances, personal loan protection insurance may provide cover for serious illness or accidental injury, involuntary unemployment and loss of life. Check your policy to see what waiting periods and eligibility criteria apply in order to make a claim.
Many Australians have been sold this type of insurance but are unable to make a claim on it. The Consumer Action Law Centre has created a tool called Demand a Refund that has helped customers who are seeking refunds for personal loan protection insurance and similar products. The reason for these refunds could be that the customer didn’t agree to buy the insurance, it was bundled in with other loan papers when applying, they felt pressured to buy it, were given incorrect information and/or were unfairly treated.
What should I consider with personal loan protection insurance?
Whether or not you want to consider personal loan protection insurance is a personal choice. Considering the ongoing criticism about this insurance, it may be a good idea to seek professional financial advice to support your decision making. Here are four general questions you may like to ask before considering personal loan protection insurance:
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Are you eligible?
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Is it in your best interest personally?
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Does it represent value for money?
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Are you already covered by other insurance/s?
Separately, it may be the case that you have been sold this type of insurance previously as part of a loan without realising it. If you’re concerned, you can visit the Demand a Refund website for tips on your next steps.
1. Are you eligible?
Some providers may require you to meet extensive eligibility criteria to qualify for this type of insurance. Criteria may be around your age, the type of employment you’re in and your residency details, as well as extra requirements for those asking for insurance for large loan amounts. Some financial institutions may also only insure loans if they are the loan provider for the same customer. Check with your provider to see if you qualify. There are various potential exclusions to be aware of when it comes to personal loan protection insurance. Depending on your policy, these may include:
- Being employed on a seasonal or fixed-term contract basis
- Becoming unfit for work due to a pre-existing medical condition
- Working less than a certain number of hours per week at the time your policy commences
- Quitting your job, retiring or accepting a voluntary redundancy
- If sickness or injury occurs or if you die as a result of suicide within a certain amount of days of your policy commencing
- Self-inflicted injury
- War-related claims
- Pregnancy and childbirth
If you have a pre-existing condition that could make you unfit for work for a period of time, check to see if it’s covered under your policy. If it’s excluded, you will not be able to claim for this condition. Thoroughly read the terms, conditions and exclusions of a potential policy before committing, which can usually be found in the Product Disclosure Statement (PDS), and consider contacting your insurer directly if you have questions.
2. Is it in your best interest personally?
Moneysmart says consumers may be offered personal loan protection insurance, when applying for a personal loan, but to be aware as “it offers poor value for money and you don’t have to buy it”. Moneysmart explains that sales staff can get a commission if you purchase this type of insurance, and you should take time to think about whether you need it before going ahead. An earlier ASIC review has also revealed that this type of insurance can offer very poor value for consumers.
Separate from whether or not personal loan protection insurance might be right for you, if you’re concerned about your capacity to repay a loan, it may be a good idea to seek professional financial advice. The NDH offers free, confidential, independent financial counselling for those experiencing financial hardship.
3. Does it represent value for money?
It’s important to consider whether the premium you pay for this insurance provides you with value for money. For every dollar paid in premiums for personal loan protection insurance, or CCI, less than 19 cents are paid out in claims, according to figures published by ASIC.
ASIC says there are some concerns around payouts for this insurance that you should be aware of. These include the fact that in most cases the money is not paid to you, but is paid directly to the credit or loan provider; and that some payments are made in instalments. The payments can stop after a period of time, leaving you to make the repayments after that time. Your payout amount is also often calculated according to the amount you owe at the time of the insured event, not when you lodge the claim. This means any extra amount added to your loan in the meantime may not be covered by the policy.
4. Are you already covered by other insurance/s?
Check to see if you need this protection at all. You might have similar coverage elsewhere, such as through income protection insurance or life insurance that may cover you and your loved ones sufficiently in different circumstances.
What are some potential benefits with personal loan protection insurance?
Personal loan protection insurance may give you greater peace of mind about balancing and juggling your finances. If you can no longer work, this insurance may provide a form of financial protection to assist you and your family with loan repayments. It may also assist with paying the remainder of your loan if you unexpectedly pass away. As missing personal loan repayments can negatively impact your credit score, this type of insurance may potentially help you maintain your credit rating, should the unexpected occur.
You can check your credit score for free with Canstar or via the Canstar App.
What does personal loan protection insurance cost?
Premiums for personal loan protection insurance are calculated based on a range of factors, including:
- The type of cover and features you choose: Whether it’s cover for life, accident and sickness, or involuntary unemployment, each option or combination of options will carry different costs. The features chosen within each type of cover may also influence the cost.
- Your loan amount and term: The size and term of your loan may be used to calculate the premium.
- Single or joint policy: Some providers may offer the option of taking out a single policy or a joint policy. The premium may change depending on the policy type you choose.
- Repayment size: The total premium will differ depending on the amount of your monthly repayments.
- Your age: Your age at the start date of your policy may be taken into consideration when calculating your premium. Check with your insurance provider to confirm.
It’s a good idea to compare quotes from several providers to find the right policy for your needs and budget. Further factors may also be considered by providers in calculating your policy cost. Remember too that ASIC research has revealed many providers may not be offering a product that represents good value for money, so doing your research is particularly important.
Are there waiting periods with personal loan protection insurance?
Depending on the policy you choose, there may be a waiting period from when you take out the policy to when you can claim. There may also be a waiting period from when you become ill, injured, or out of work until you can claim. Some products may also include a cooling-off period, which is the amount of time you have to cancel your policy and recover any premiums you have paid. If you cancel after the cooling-off period, your premiums may not be refunded. Check your policy’s PDS for more details.
Is personal loan protection insurance different from income protection insurance?
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 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.
How can I get personal loan protection insurance?
Personal loan protection insurance is often made available from your loan provider, such as a bank or credit union, or can sometimes be purchased directly from an insurer. Before you purchase personal loan protection insurance, consider whether this approach is right for you and if it will be cost-effective. Research your options carefully and read through the terms, conditions and exclusions in the PDS of a policy before proceeding.
Compare Personal Loans with Canstar
The table below displays some of our referral partners’ unsecured personal loan products for a three-year loan of $20,000 in NSW. The products are sorted by Star Rating (highest to lowest) followed by comparison rate (lowest to highest). Consider the Target Market Determination (TMD) before making a purchase decision. Contact the product issuer directly for a copy of the TMD. Use Canstar’s Personal Loans comparison selector to view a wider range of products on Canstar’s database. Canstar may earn a fee for referrals. Read the Comparison Rate Warning.
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Additional repayments
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Redraw facility
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Top-up facility
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Application fee: $0
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Annualised fee: $0
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Loan terms available: 3 years
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Additional repayments
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Redraw facility
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Top-up facility
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Application fee: $0
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Annualised fee: $0
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Loan terms available: 1 year to 7 years
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Additional repayments
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Redraw facility
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Top-up facility
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Application fee: $0
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Annualised fee: $0
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Loan terms available: 3 years to 7 years
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Additional repayments
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Redraw facility
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Top-up facility
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Application fee: $0
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Annualised fee: $0
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Loan terms available: 1 year to 7 years
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Additional repayments
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Redraw facility
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Top-up facility
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Application fee: $300 up to $1200
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Annualised fee: $0
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Loan terms available: 1 year to 7 years
The Car and/or Personal loan products displayed above that are not “Sponsored or Promoted” are sorted as referenced in the introductory text and then alphabetically by company. Canstar may receive a fee for referral of leads from these products. See How We Get Paid for further information.
Canstar is an information provider and in giving you product information Canstar is not making any suggestion or recommendation about a particular product. If you decide to apply for a personal loan, you will deal directly with a financial institution, not with Canstar. Current rates and fees are displayed and may be different to what was rated. Rates and product information should be confirmed with the relevant financial institution. For more information, read our detailed disclosure, important notes and additional information.
*Read the comparison rate warning. The results do not include all providers and may not compare all the features available to you.
Cover image source: fizkes/Shutterstock.com
This article was reviewed by our Finance Editor Jessica Pridmore before it was updated, as part of our fact-checking process.

- What is personal loan protection insurance?
- What does personal loan protection insurance cover?
- What should I consider with personal loan protection insurance?
- What are some potential benefits with personal loan protection insurance?
- What does personal loan protection insurance cost?
- Are there waiting periods with personal loan protection insurance?
- Is personal loan protection insurance different from income protection insurance?
- How can I get personal loan protection insurance?
^Read the Comparison Rate Warning.
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^Read the Comparison Rate Warning.