Credit or loan insurance

From: Financial Consumer Agency of Canada

What to know about credit or loan insurance

Credit or loan insurance provides coverage that may help you pay off your loan or make your loan or credit card payments in the event of job loss, critical illness, accident or death.

Credit or loan insurance is usually offered at the time your mortgage, line of credit, credit card or loan is being approved. You can also sign up for it at a later time.

This type of insurance is also known as:

  • creditor insurance
  • balance protection insurance
  • balance insurance
  • debt insurance

Credit or loan insurance is a separate product from a loan or credit card. You do not have to take this insurance to be approved for a loan or activate your credit card.

Not all credit and loan products will offer the same type of insurance coverage. For example, you may be able to get life insurance and critical illness insurance coverage on a line of credit, but not disability insurance.

Compare insurance coverage and cost with the coverage you may have through an individual plan or your employer in case of death, critical illness, disability, or job loss. You can also compare the coverage offered by other insurance products, such as term life and health insurance.

Decide if you need credit or loan insurance

Before you enter into a review period or sign up for insurance on your credit card or loan, make sure you receive and review information on the cost, coverage, and the benefits that could be paid. This information is found in the certificate of insurance.

You can usually get a sample certificate of insurance from the financial institution that provides you with a loan or credit card, or find one on their website. You don’t need to sign up for this type of insurance or enter into a review period to get a sample certificate of insurance.

Use the certificate of insurance to determine:

  • if you’re eligible for coverage
  • how much the insurance will cost
  • what the maximum benefit would be
  • what’s considered an exclusion or limitation
  • when an insurance benefit would be paid or declined if you make a claim

Be aware that your coverage may be reduced or end when you reach a certain age, or that there could be limits on claims for specific medical conditions.

If you have any questions about being approved or what the insurance will cover, contact the insurance company directly before signing up for credit or loan insurance. The insurance company will be listed under the terms and conditions found in the certificate of insurance.

Learn more about determining your insurance needs.

Find out if you have credit or loan insurance

You must agree to sign up for and be enrolled in credit or loan insurance.

You can find out if you have credit or loan insurance by:

  • checking your files for a copy of the certificate of insurance
  • checking your bank statement for a debit related to the insurance premium payment
  • checking your credit or loan agreement for information about optional services
  • asking the financial institution, or other business where you took out your loan or credit card, if you have it.

Find out how to check for balance protection insurance on your credit card.

Types of credit or loan insurance

Depending on the product you’re getting insurance for, there will be different types of insurance coverage available.

Life insurance to pay off credit or loans

This type of life insurance can cover the remaining amount of your loan in the event of your death. Your insurance company will use the death benefit to pay down or pay off the remaining balance on the loan, up to a maximum amount outlined in the certificate of insurance. The money from your death benefit will go to your creditor. The money won't go to your family or beneficiaries.

If you want your family or beneficiaries to receive a death benefit in the event of your death, you need to buy a separate life insurance policy.

Learn about the types of life insurance available.

Critical illness insurance on credit or loans

This type of insurance can help to pay off or pay down the remaining balance on your credit or loan if you're diagnosed with one of the critical illnesses specified in your certificate of insurance.

Your certificate of insurance provides a list of the illnesses that are covered.

Pre-existing illnesses and medical conditions are usually not covered. However, some insurance will pay benefits if you've been free of the illness or medical condition for a period of time. This will be defined in the terms and conditions in your certificate of insurance.

Learn about supplementary health insurance to help you replace your income in the case of critical illness.

Disability insurance on credit or loans

This type of insurance can help to ensure that the regular payments on your loan or credit card will be made for a certain period of time if you become ill or have an accident that leaves you unable to work and earn an income. It generally doesn't pay off the full outstanding balance of your loan.

You'll still be responsible for paying the balance on your loan when you recover or after the coverage period ends, whichever happens first.

Your certificate of insurance will define the disabilities that would make you eligible for benefits.

It will also have other terms and conditions related to:

  • the amount of the payments
  • how long the company will make payments

Some policies will include job loss insurance in addition to disability insurance. Job loss insurance may make the minimum payment if you can’t work because of involuntary job loss. Involuntary job loss usually means if you were laid off, dismissed without cause, or if you’re involved in a legal strike or walk out.

Learn about disability insurance to replace your income if you become unable to work.

Getting credit and loan insurance

You usually get credit or loan insurance at the same business where you get your loan, line of credit, credit card or mortgage.

This includes:

  • banks
  • credit unions
  • mortgage brokers
  • car dealers
  • caisse populaires
  • stores that offer credit cards

This type of insurance is optional. Federally regulated financial institutions aren’t allowed to pressure you into taking credit or loan insurance from them or from their affiliates, as a condition for getting a loan or credit card from them. This is called coercive tied selling and it is prohibited in Canada.

Keep in mind that you may be required to get mortgage loan insurance, for example, when you get a mortgage. This is a different type of insurance from credit and loan insurance.

You must agree to sign up and be enrolled in credit or loan insurance before you can be charged for it. This is known as giving your express consent.

You can give consent:

  • verbally, such as over the phone
  • in writing on paper
  • face to face with an employee in a branch
  • in writing using an electronic format, such as on a website

Being charged or paying for a product or service does not mean that you've given consent.

Financial institutions also can’t mislead you about credit or loan insurance when you give consent. This means that credit or loan insurance must be explained to you in a way that is accurate, clear and simple.

Learn more about coercive tied selling.

Learn more about giving your express consent for financial products and services.

Learn more about mortgage loan insurance.

Cost of credit or loan insurance

When you get credit or loan insurance, you either pay a recurring premium when your loan payment is due, or a one-time premium. If you’re charged a single premium, you will usually be charged at the time your loan is approved.

Recurring premiums are usually calculated based on:

  • the initial amount of your loan
  • the amount of time you will take to pay off your loan
  • average daily balance of the previous month, if you have credit card balance insurance
  • your age, your sex, and your health

Credit and loan insurance can be expensive. It may not offer you the insurance coverage that best meets your needs. These products are not sold by a licensed insurance representative. This means that you won’t receive a full review of your insurance needs and financial circumstances when you sign up for credit or loan insurance.

In some specific circumstances, credit or loan insurance may be more affordable and provide you with the coverage you need compared to other types of individual or group insurance. This will depend on factors like your age, sex, health, the initial amount of the loan, and type of product you’re getting insurance for.

Learn more about how premiums are calculated for credit card balance insurance.

Comparing the annual cost of mortgage loan insurance and term life insurance

For example, on a $250,000 mortgage with a fixed term of 5 years, at an interest rate of 5%, a 37-year-old, non-smoker woman in good health, living in Ontario would pay $600 a year to get mortgage life insurance, a type of credit and loan insurance.

To insure the same amount the woman would pay $190 a year for a life insurance policy with a 10-year term or $300 a year for a life insurance policy with a 20-year term.

This example is used for illustrative purposes only. Your age, health, sex, type of product you’re insuring and the initial amount of the loan will determine the cost of insurance coverage. Be sure to compare insurance options to find out what offers you the coverage you need and is the most affordable.

Figure 1

Figure 1: Comparison of the annual costs of mortgage life insurance and term life insurance policies

Figure 1 – Text version
Credit or loan insurance Annual cost
Term 10 life insurance policy $190
Term 20 life insurance policy $300
Mortgage life insurance $600

Keep in mind that for loans that have fixed amounts, such as a mortgage, the premiums are based on the original amount of the loan. As you pay down your loan, the premiums generally remain the same even though you'll owe less on your loan. The death benefit will decrease as you make payments and the outstanding balance is reduced.

Understand the terms and conditions of credit and loan insurance

The terms and conditions of credit and loan insurance can vary depending on the insurer. The terms and conditions will also tell you what type of claims you can make. Make sure you understand the terms and conditions before you sign up for credit and loan insurance.

Depending on the type of credit and loan insurance you get, the terms and conditions will tell you:

  • the maximum benefit that can be paid
  • for critical illness coverage, the specific conditions covered by the insurance policy
  • for disability coverage, the definition of disability
  • for job loss coverage, whether you’d qualify for a job loss benefit if you’re self employed

There’s also usually a minimum number of hours you need to work to qualify for a job loss or disability benefit after you lose your job or become injured. For example, if you are a student you may not need job loss insurance on a loan or credit card if you don’t have a job.

There are important exclusions on credit and loan insurance that determine if your claim will be approved. Exclusions are conditions or circumstances that aren’t covered by your insurance policy. For example, pre-existing conditions, such as heart disease, asthma, or high blood pressure may not be covered.

Even once you’ve been approved, not all claims will be paid.

For example, depending on the type of insurance, a claim might not be paid if:

  • you have a pre-existing condition related to the claim
  • you had symptoms of a disease when you applied
  • you were fired from your job with cause
  • you resigned
  • you were working on a contract

If you have any questions, contact the insurance company before applying for credit or loan insurance.

Eligibility for credit or loan insurance

To find out if you’re eligible for credit or loan insurance, you usually need to:

  • be above the minimum age to qualify, usually 18 years old
  • be under the maximum age to qualify, often between 65 and 70 years old
  • respond to a short health questionnaire of ‘yes’ or ‘no’ questions.

Based on your answers to the health questionnaire, you may be approved right away or you might need to take a medical exam before you can be approved.

Your insurance won’t be valid if you do not provide accurate answers on this questionnaire. This means a claim won’t be paid, even if you’ve paid premiums. Take your time in answering the questionnaire carefully and truthfully. Understand if you’re eligible for coverage and ask questions if you have any. Take the documents home with you or consult with a medical professional if needed.

You may lose your coverage if:

  • you’re over your credit limit
  • you owe any payments that are past the due date
  • you have recent dishonoured payments on your account

Dishonoured payment happens if an automatic payment does not go through because you've reached your credit limit.

Keep in mind that after you make a claim, the insurance company that provides insurance can more fully investigate. They do this to make sure you answered the questions on the application accurately and that you met the eligibility requirements to apply that are included in the terms and conditions in the certificate of insurance. If you didn’t answer the questions on the application accurately, or the circumstances of your claim don’t meet the terms and conditions, the insurance may not be valid and your claim may not be paid.

How to make a claim

Check your certificate of insurance for the steps to make a claim.

Usually, you start your claim either online or over the phone through the insurance company listed in your certificate of insurance. You will likely be asked to complete claims forms and you may be required to provide more information and take a medical exam.

Most certificates of insurance require that claims be made within a certain timeframe, usually ranging from 90 days to a year from the date of your injury, critical illness, disability or death, depending on the type of claim you’re making. You’ll find information about the timeframe to make your claim in your certificate of insurance. It’s important that you begin your claim during this timeframe or your claim might be declined.

Keep in mind that the benefit is paid to your creditor to reduce or pay off your debt. Your creditor is the company that you owe money to. For example, if you have mortgage life insurance, the benefit is paid to the financial institution that provided the mortgage to pay off your mortgage in the event of your death.

Find out more information about making an insurance claim.

Cancelling credit and loan insurance

You can cancel credit and loan insurance at any time. Check your certificate of insurance for the steps to take.

Usually you need to contact the insurance company. Keep in mind that the insurance company is often a different company than the financial institution where you signed up for insurance.

When your coverage starts, there’s usually a 20 to 30-day review period, depending on your province or territory. The review period is sometimes called a free-look or trial. During this time, you can cancel the policy and get a refund for any premiums you have paid. If you don’t want credit or loan insurance you are responsible for cancelling it. After the review period ends, if you don’t ask your financial institution or insurance company to cancel this type of insurance, you will continue to receive insurance coverage and be charged a premium for it.

Find out more information about cancelling your insurance.

Making a complaint about credit or loan insurance

Federally regulated financial institutions, such as banks, can’t charge you for credit and loan insurance if you haven’t agreed to sign up for it.

If you notice a debit related to an insurance premium payment on your bank statement, or a charge related to credit card balance insurance on your credit card statement but you didn’t sign up for it, make a complaint by following these steps:

  • Step 1: start locally by contacting the financial institution where you signed up for your loan or credit card
  • Step 2: escalate your compliant to the senior manager of the financial institution
  • Step 3: escalate your complaint to the financial institution’s internal ombudsman
  • Step 4: escalate your complaint to a third-party for their review of your complaint, also known as an external complaints body

Find out more about how to file a complaint with a financial institution.

If your complaint has to do with the insurance coverage or a claims process, find out how to make a complaint about your insurance provider.

If you think your complaint with a federally regulated financial institution relates to a breach of a law, code of conduct or public commitment, you can contact the Financial Consumer Agency of Canada (FCAC).

Learn more about filing complaints with FCAC.

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