The Home Loan Compassionate Care is available for new and existing owner-occupied home loan customers aged between 18-59. The protection is only available for customers with a standard variable rate home loan, fixed rate home loan, or an Extra home loan, and a $120,000 cap applies.
The initiative comes as new research from the big four bank reveals a third of Australians would only be able to make their home loan repayments for up to six months if they, their spouse or dependent were to die or be diagnosed with a terminal illness.
One in 10 homeowners said they would only be able to cover their mortgage repayments for one month or less.
Angus Sullivan, Group Executive Retail Banking Services said the initiative is an Australian first.
"We know that mortgage repayments are the single biggest financial commitment for Australian homeowners, so when the unthinkable happens, we'll support our customers by making their home loan repayments for around 12 months at no cost," he said.
"We're proud that together with AIA we have been able to deliver this Australian-first for new home loan customers and will be making it available to our existing customers at no cost to thank them for their loyalty."
The research also revealed that over half of Australian homeowners haven't had a conversation with their spouse or dependents about how they would continue covering their home loan repayments if they passed away or were diagnosed with a terminal illness.
While nearly half of respondents said they manage the monthly mortgage payments, a third are not completely across the details of their home loan. Women (40%) were more in the dark than men (29%).
Mr Sullivan said the bank has made it as easy as possible to access the protection.
"If something were to happen, the last thing you should have to worry about is your home loan. In designing this protection, we've made sure there's no need to sign up or to activate it.
"We've also consulted with our own employees who have gone through similar, difficult experiences to ensure the end-to-end claims process is as easy and stress-free as possible, and a dedicated team has undergone specialised training to handle these sensitive matters."
The research also found that almost half (45%) of respondents said they would need financial assistance to cover their mortgage repayments. That number increased to 55% for those with children under the age of 18, and was highest for those under the age of 30 (67%).
Of those who said they would require financial help, two fifths said they would ask family or friends for support.
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