Loan protection in Australia is essentially an insurance, which guarantees repayments if you are unable to earn an income owing to sickness, injury or death. This is a type of insurance which protects monthly loan repayments only. Loan protection insurance is used to protect:
The conditions for loan protection in Australia vary but the insurance is generally available to people between 18-65 years old.
In the event of being unable to work, the loan protection in Australia will pay benefits based on the cover and the level of injury.
In the case a person dies there is a maximum death benefit which completely repays the loan. For injury, disability or retrenchment situation, people need to apply for loan repayment cover (monthly payments to cover the costs).
Most financial institutions offer 3 types of loan cover and 2 types of loan repayment cover The loan protection cover includes:
The loan repayment cover has following benefits:
The death benefit is designed to completely pay off the loan. The scheme sets up the limit within which the insurance repays the loan.
For example, CommInsure will provide up to $750K to pay off the remaining balance. Westpac would pay maximum of $100K.
Death benefit applies only to accidental or natural death. Suicides are excluded from this type of loan protection scheme. Most insurers treat the terminal illness same as death. In majority of cases benefactor will receive a lump sum to repay the loan.
Generally, both the unemployment and disability carry the same level of benefits. Under these schemes insurers provide loan repayment cover.
This means that the benefactor will receive between $2000-$7500 per month based on the level of policy.
However, the maximum period varies as the policy has a limiting cap imposed on the funds (often 3-6 months). In most cases the disability is relatively simple to fit into the insurer's policy. However, the loan protection for unemployment is often unclear. Number of insurers insist that in order to purchase unemployment benefit policy you also need to purchase the disability cover.
However, you do not get funds from both in case you become disabled. Also, many insurers provide this vague clause for unemployment benefit: "in case you are unemployed as the result of injury, sickness...". However the main advertisements talk about retrenchment (hmmm...????). The rule of thumb is to always ask questions, get everything on the paper or shop around. The good thing about income protection is that it is tax deductable.
Major Australian banks provide loan protection insurance. Commonwealth, ANZ, Westpac and NAB all have insurance departments which offer the cover.
However, banks do not actually deliver the insurance.
The loan protection scheme is often in the hands of private insurers who are either related to the bank or independent altogether. Therefore, you do not need to get the loan protection from the banks. Private companies like ProInsure and Iselect offer a comprehensive list of products to choose from.