Loan Protection Insurance

If you borrow money from the Commonwealth Bank to purchase a house or land or some other asset, there is a good chance you will be contacted by a bank officer and asked if you would like to take out loan protection insurance.

Loan protection is an insurance cover offered to Commonwealth Bank borrowers to provide cover in case of death, some medical trauma events and terminal illness. The aforementioned cover is called Loan Cover. Loan Protection also includes a disablement benefit and an unemployment benefit under what is called Loan Repayment Cover.

If you are interested in this type of insurance you will be sent a Policy document and Product Disclosure Document and be given a 14 day cooling off period to consider whether or not the policy suits your needs. The 14 day cooling off period is designed to provide customers with time to read the policy terms and conditions carefully including the requirements in order to be eligible to receive unemployment and disablement benefits.

If you die, the Commonwealth Bank’s insurer CommInsure will immediately seek to obtain a copy of all of your medical records. CommInsure will not pay out the loan protection cover if your death is as a result of:

• any illness for which you had symptoms or received professional medical advice or treatment within 12 months before your cover start date;
• intentional self-inflicted injury or infection; an
• your use of alcohol or drugs not taken under the supervision of a doctor.

When an insurer declines to accept liability under a contract of insurance there is generally the opportunity to have the decision reviewed internally by the insurer.

If the insurer declines to reverse the decision to reject the claim the matter can be referred to the Financial Ombudsmen Service. The Financial Ombudsmen Service will attempt to have the parties negotiate a resolution. If the Financial Ombudsmen Service is required to adjudicate on the matter and makes a direction that the insurer is liable to honour the contract of insurance, then this decision is binding on the insurer. If the Financial Ombudsmen Service does not make a direction that the insurer is liable to honour the contract of insurance that decision is not binding on the party complaining about the conduct of the insurance company.

A dissatisfied party is then left to commence an action for breach of contract through the courts. Where an insurance company relies upon an exclusion clause, the onus of proving the breach will rest on the insurer.

Paying insurance premiums for this type of insurance is of no value unless you die. Dying is something which most of us are trying to avoid. If you have been paying insurance premiums and then die and then your Executors have your insurance claim rejected it is even more distressing. A

n offer of insurance that does not involve a medical examination or disclosure of your complete medical history may not be what you think it is, and may be worthless unless you read the Product Disclosure Document and Policy closely or obtain professional advice with respect to the same.