6.2.10 Credit or debt insurance

From: Financial Consumer Agency of Canada

There are insurance products available to protect you if you cannot pay your debts because of illness, accident or death.

The chart summarizes the main types and their features.

Type of insurance

How it works

Mortgage disability insurance

makes mortgage payments to your lender(s) for a specified time if you cannot work due to a severe injury or illness.

Mortgage default insurance

protects the mortgage lender if you cannot make your mortgage payments. It is required by law if your down payment is less than 20 percent of the purchase price of the home.

Mortgage life insurance

pays the remaining balance on your mortgage to the lender in the event of your death.

Credit protection insurance

makes the minimum monthly payments on a credit card, loan, line of credit or other debt for a specified time if you cannot work due to severe injury or illness. You are responsible for paying the balance when you recover or after the coverage period ends (and for any new charges).

Credit balance insurance

pays the remaining credit card balance, bank, line of credit or other debt in full, to the lender at the time of your death.

Identity theft insurance

helps you recover lost wages, restore your credit and reclaim your identity in the event of identity theft. It does not reimburse you for money that has been stolen from you.

Be aware that all of these types of insurance may be subject to limitations and exclusions. For example, mortgage life insurance and credit balance insurance are life insurance products, so they may require a medical exam before approving you for a policy, just like other life insurance products. Read your policy carefully and make sure you understand what is covered.

Consumer credit and debt insurance is usually quite expensive, so make sure you really need it. Discuss your options with an insurance agent.

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