Want ‘fries’ with your purchase? Think again
YOU know something is not right when a financial product is benefiting the person who sold you it more than it is helping you.
At the top of the list of such unhelpful financial products is consumer credit insurance (CCI).
CCI is a “bolt-on” insurance policy that is sold with credit cards, personal loans, car loans and home loans and for which the seller earns commission.
It is marketed as a way of helping a borrower make their repayments if they become unemployed, sick or die.
These products are often referred to as “junk insurance’’ and were the cause of the largest insurance scandal in the UK, as a result of which more than $50bn was refunded to British consumers.
Customers are sometimes not even aware they have purchased CCI.
When they have bought it and try to make an insurance claim, a high number of these are rejected.
Where claims are successful, they often pay out only a fraction of the outstanding debt — as opposed to the whole amount.
In 2016, the Australian Securities & Investments Commission (ASIC) reviewed the sale of such insurance policies by car dealers and found them to be overpriced and to give little or no value.
These products are, of course, not alone in their shortcomings. Pet insurance is renowned for not offering cover for pre-existing conditions and for being impossible to switch providers once a claim has been made for your pet. Not to mention the ease with which a provider is able to reduce cover, increase premiums and add exclusions year-on-year.
Mobile phone insurance can be expensive too –— especially when the cost of a high excess is factored in — with claims often hard to make and replacement handsets not always like for like.
The bottom line? Think twice next time someone tries to cross-sell insurance “fries’’ to you with the “burger’’ you are buying from them.
David Rankin is a former bank manager and founder of Geelong-based personal budgeting service Sort My Money.