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Earlier this week, the Commonwealth Bank of Australia (CBA) officially launched its new “Home Loan Compassionate Care”, run in partnership with AIA group, in a bid to help reduce financial distress to owner-occupier borrowers that are impacted by terminal illness.
The initiative provides complimentary protection to CommBank owner-occupier mortgagors by covering their mortgage repayments for 12 months if they, their spouse or dependant passes away or is diagnosed with a terminal illness.
The new scheme was launched after the bank found that only a third of Australians would be able to cover their home loan repayments for up to six months if they, their spouse or dependant passed away or was diagnosed with a terminal illness, with one in 10 home owners only able to cover mortgage repayments for a month or less.
Mortgage protection provider ALI Group applauded CBA’s introduction of Compassionate Care to its eligible home loan customers, given that “the underlying underinsurance of mortgage-holders in Australia is a concern”, but warned that the scheme’s reach was “very limited”.
While the group noted that the initiative would be “very positive in raising awareness” of the risks of financial hardship in the event of terminal illness and death, it added that the fact the cover was only for a period of one year and did not cover critical (but non-fatal) illness meant it was limited.
Research commissioned by ALI Group in 2017 found that more than half (56 per cent) of Australians rank serious illness or job security as their main concern in paying off their mortgage, with nearly a quarter (23 per cent) stating they would rely on their family and social network for financial support should they lose their job or have a critical illness reduce their capacity to work.
Huy Truong, the CEO of ALI Group, emphasised that mortgage-holders may still struggle with financial hardship in the event where there is a critical illness or trauma that does not result in death, highlighting that the majority of the group’s own mortgage protection claims arise from critical illness, “where the claimant recovers but at a great financial cost”.
According to Mr Truong, these costs include (but are not limited to): treatment, medicines, surgeries, travel costs, loss of income, and other living expenses.
The CEO continued: “The good news is, with advancements in medical research, survival rates are increasing for Australians impacted by cancer, heart attacks, strokes and other serious illnesses. One in every three Australian men and one in every four women will be diagnosed with cancer. However, the five-year survival rate for the more common diagnosed cancers of breast and prostate is above 90 per cent, [according to the Cancer Council].
“The bad news is the out-of-pocket costs and long-term expenses [that] come with a serious illness, like cancer. An Australian male between the age of 25-34 years diagnosed with prostate cancer can expect to be out of pocket by over $36,800 and could need over 48 days off work in recovery,” he said, citing figures from Zurich Australia.
“It is in view of these realities, we ask for Australians to consider how they would manage financially,” the ALI Group CEO urged.
Mr Truong concluded: “Despite the limitations of Compassionate Care, we applaud CBA for putting this very important issue on the table.
“Compassionate Care will now ensure every mortgage broker in Australia who is offering an eligible CBA home loan will discuss servicing a mortgage in the face of financial hardship brought about by serious medical events and highlight these risks to Australian home and property buyers.”
[Related: CBA launches new home loan initiative]