Insurance covering the balance of a loan (mortgage loan, credit card, line of credit, etc.)
Insurance covering the balance of a loan (known by many different names, including loan insurance, credit insurance, personal loan insurance and line of credit insurance) can help you repay a loan in the event of death, disability, critical illness or involuntary loss of employment. Unlike disability insurance, loan insurance doesn’t provide you with income support should you become disabled.
A lender may require you to insure your loan so it gets repaid if ever you pass away, become disabled or are dismissed without cause or laid off by your employer.
However, although a lender may require you to purchase loan insurance, it cannot compel you to purchase a specific insurance product or choose a specific insurer. You have the right to choose the insurance product and insurer that work best for you.
Don’t get insurance you don’t need
Before you purchase insurance required by a lender, check whether the insurance you already own meets both your needs and those of the lender.
If you already have disability insurance, life insurance or loan insurance, you may not need to purchase more insurance. Don’t hesitate to seek the help of an authorized representative.
End of the insightBefore choosing insurance, compare coverages and prices.
There are two types of loan insurance: loan insurance sold by firms and their representatives and the loan insurance sold by lenders.
Here are some differences between the loan insurance sold by a firm and its representatives and the loan insurance sold by a lender:
| Insurance sold by a firm and its representatives | Insurance sold by a lender | |
|---|---|---|
Coverages available | Life, disability, job loss and critical illness insurance may be offered separately or bundled together. Check, in particular, the definition of disability in the contract and the exclusions, especially those relating to your current state of health and health issues you may have had in the past. | The insurance may cover all or part of the balance of your loan in the event of death, disability, critical illness or involuntary loss of employment. Check, in particular, the eligibility criteria, the definition of disability in the contract and the exclusions, especially those relating to your current state of health and health issues you may have had in the past. |
Seller | This insurance is sold by an insurance firm or authorized representative. The firm or representative must advise you on the product that is best suited to your needs. | The insurance is sold by the business financing you. Check the coverage included in the contract to ensure it suits your needs. The lender is not required to analyse your needs and cannot give you any insurance advice. |
Cost | The cost of the insurance varies based on such factors as the amount of insurance you choose, your age and state of health, and whether you’re a smoker or non-smoker at the time you purchase the insurance. You can choose to pay a periodic cost that will not increase until the loan is renewed or fully repaid. | The cost of the insurance varies depending on, among other things, the loan amount to be covered. Check the annual cost of the insurance. The cost may increase at renewal of the loan (often, after 5 years). |
Benefits | The insurer verifies your state of health before issuing you the insurance. However, the insurer may refuse to pay a benefit for various reasons, including situations where an exclusion applies (e.g., injury suffered while driving under the influence or ski jumping). | The insurer may refuse to pay a benefit for various reasons, including situations where an exclusion applies (e.g., injury suffered while driving under the influence or ski jumping). |
Beneficiary under the contract | Unless the lender requires you to name it the beneficiary under the contract for an amount equal to the balance of your debt, the benefit will be paid directly to you. You will able to use it as you see fit. | The lender will receive the benefit and apply it towards the balance of your debt. If you change lenders, you will have to purchase new insurance (provided you are still insurable). |
Loans covered | All your loans, under one or more contracts (at your option), including:
| A single loan per insurance contract. |
Before you purchase insurance sold by a lender
- Check if you are eligible for the insurance as there is often a maximum age, e.g., 65 years.
- Check the insurance coverage, benefit amounts, cost and exclusionsAn exclusion is a risk that is not covered by an insurance policy, such as damage caused by war.. Past health issues may be excluded.
- Compare this product with the insurance you already have and the insurance sold by a firm or one of its representatives.
- Seek advice from an insurance firm representative, who will help you determine your needs.
If you have a question or an issue with an insurer or person offering you loan insurance, contact us for information or assistance.
End of the Information