Credit and loan insurance

From: Financial Consumer Agency of Canada

Decide if you need credit and loan insurance

Your financial institution may offer you credit or loan insurance when you get a mortgage, line of credit or other loan with them. This type of insurance is also known as creditor insurance or debt insurance.

This type of insurance helps cover your loan payments if you can’t make payments due to illness, accident or death. Benefits are paid to your creditors (the companies that you owe money to).

In most cases, credit and loan insurance applies to a specific loan. If you'd like insurance on multiple loans, you'd need to get insurance for each loan.

Getting credit and loan insurance

This type of insurance is optional. You must agree to buy the insurance for the lender to charge you.

You can give consent in the following ways:

  • verbally
  • in writing on paper
  • in writing using an electronic format

Using a product or service does not mean that you've given consent.

Life insurance to pay off credit or loans

This type of life insurance covers your loan payments in the event of your death. Your insurance company will use the death benefit to pay the remaining balance on the loan. The money from your death benefit will go to your creditor. The money won't go to your family or beneficiaries.

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.

If you want your family or beneficiaries to receive a death benefit in the event of your death, you'd 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 will ensure the outstanding balance on your credit or loan will be paid if you're diagnosed with one of the critical illnesses specified in your insurance policy.

Your policy lists:

  • which illnesses are covered
  • what you need to qualify for the insurance

For example, cancer is usually one of the illnesses covered. However, some policies may cover only for certain types of cancer.

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

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 ensure that the required minimum payments on your loan or credit card will be made for a certain period of time if you get an unexpected illness 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
  • after the coverage period ends

Your policy will define the disabilities that would make you eligible for benefits. It will also have other terms and conditions. These include:

  • the amount of the payments the insurance company will make toward your credit or loan
  • the length of time the insurance company will make payments toward your credit or loan

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

Credit card balance insurance

If you become injured, disabled or lose your job, credit card insurance will make the minimum payments on your credit card or will pay a specified percentage of your monthly balance.

If you die or have a critical illness, the insurance company will pay off the credit card balance owing at the time of your illness or death.

Make sure you read your policy carefully and understand what is covered and what is not.

Learn more about getting credit card balance insurance.​

What to consider before you sign up for credit or loan insurance

Before you sign up for insurance on your credit or loans, do the following:

  • review your existing insurance coverage
  • check if you already have insurance coverage through your employer to pay off your debts in case of death or disability
  • compare the coverage offered by other insurance products, such as life and health insurance, to see which product meets your needs and offers the best value

Note that credit or loan insurance often has exclusions relating to pre-existing health conditions. This may include conditions such as asthma, high blood pressure or heart disease. An exclusion is anything not covered by your policy.

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