How do I know if I am underinsured? Should I have had something like Consumer Credit Insurance (CCI) in place before Covid 19 hit? Would this type of insurance cover my mortgage and Credit card repayments in this crisis where my hours have been significantly cut?
Jamie in North Lakes, QLD
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Thanks for the questions Jamie, in particular the underinsurance one, as this still seems to impact many Australians who are of working age.
Simply put, underinsurance is the difference between what cover people should have, versus what cover they do have, and can mean that people do not have enough money or access to funds to pay off debts, to replace the future income of a parent/partner that has passed, or to afford important expenses such as children’s education.
A key first step in minimising the risk of underinsurance would be to contact your super fund to see what insurance covers you may have in place and/or what you may hold personally. Once you have determined this, you will then need to work out what financial safety net you have, if you were to pass, become disabled or be unable to work for a lengthy period of time.
Look at how much money you have in savings, superannuation and investments, plus whatever support financially your family may be able to provide, should a worst-case scenario present itself.
The second step is working out how much insurance cover you think you need. You can do this by speaking directly with a financial adviser or using online insurance calculators that can help you work out how much cover you should have. The Australian Securities and Investments Commission (ASIC) provides some useful information in this area – kindly see included link below; https://moneysmart.gov.au/how-life-insurance-works
Additionally, the below table from Rice Warner presents an interesting insight as to how many years of income may be needed for families with children.
Source: Rice Warner, 8 February 2018, Life Insurance Adequacy, http://www.ricewarner.com/life-insurance-adequacy/
With regards to your question on having Consumer Credit Insurance (CCI) in place prior to COVID-19, I guess the old saying ‘hindsight is a beautiful thing’ springs to mind. Having said this though, the challenge is often being prepared or having a plan in place, should that unforeseen or that ‘rainy day’ event eventuate.
As you are probably aware, CCI covers you should something happen to you that affects your ability to meet your credit repayment and is often offered by a lender when it approves your credit – such as a credit card, personal loan or mortgage. Under this type of insurance cover, if a claim is approved, the insurer pays the money to the lender and not to you as the customer.
As to whether CCI would provide cover for your mortgage or credit card repayments, should your work hours be cut due to COVID-19, I would suggest that you contact a relevant product provider to check. Many companies as a result of COVID-19, will have specific processes and procedures to deal with customers that have been adversely affected by this pandemic.
Generally speaking though, CCI normally provides cover if:
- You cannot meet the repayments because you lose your job, you are sick or injured, or you die.
- Your credit card is stolen.
- Goods you buy using your credit card or loan are damaged, lost or stolen.
If you are experiencing financial hardship, then you should contact your lender or financial service provider about a hardship variation.
Finally, you may want to consider speaking with a financial adviser to determine whether other personal risk insurances, such as income protection, maybe worthwhile considering based on your circumstances and needs.
While the Adviser Ratings Website facilitates the question and answer functionality, all such communications are between users and authorised financial advisers, of which Adviser Ratings has no affiliation. Adviser Ratings is not the advice provider and does not provide financial product advice and only provides information that is general in nature.