By Keith Martin, Executive Director, CAFII
When it comes to financial security, homeowners and borrowers have many options to protect themselves and their loved ones. Credit Protection Insurance (CPI) is one of those options, which can help provide an extra layer of financial protection in case of an unexpected, covered life event such as job loss, critical illness, disability, or death. However, there are several misconceptions about CPI that can prevent Canadians from fully understanding its value.
At CAFII, we’re committed to helping consumers make informed financial decisions by providing clear and accurate information about insurance products. Let’s take a closer look at some of the most common myths surrounding CPI—and the facts that debunk them.
Myth #1: “CPI is the same as traditional life or disability insurance.”
The Reality: CPI is designed specifically to help repay outstanding debt obligations—such as a mortgage, home equity line of credit (HELOC), personal loan, or credit card balance—if the insured person experiences a covered event, like job loss, disability, critical illness, or death.
Unlike traditional life insurance, CPI is paid directly to your lender to pay off or reduce the outstanding balance of your insured credit product, which helps reduce the financial burdens of the debt on your family during difficult times. Moreover, CPI offers the added convenience of not having to manage the administrative steps required to make payments to your lender, providing protection when it matters most. It can work alongside other insurance policies as part of a comprehensive financial protection plan.
Myth #2: “CPI is expensive and not worth the cost.”
The Reality: CPI is often more affordable than people assume. For revolving credit products (e.g., credit cards, lines of credit), premiums are based on the outstanding balance, meaning they fluctuate as the balance changes.
For term loans or mortgages, premiums are based on the original loan amount and may remain fixed for the duration of the amortization period – unless the loan is refinanced or otherwise modified.
The cost of Credit Protection Insurance (CPI) is generally determined by factors such as the balance or payment amount being insured and the insured person’s age. In many cases, coverage is issued immediately without the need for additional medical texts and health questionnaires.
Because CPI is offered under group policies rather than individually underwritten plans, it provides many Canadians with access to coverage at competitive, group-based rates.
Myth #3: “CPI is difficult to claim and rarely pays out.”
The Reality: Credit Protection Insurance (CPI) pays out at rates comparable to other types of insurance. Like all insurance product, CPI policies include limitations and exclusions, and claims must meet the eligibility requirements outline in the certificate of insurance.
Once a claim is submitted and the necessary documentation is reviewed and validated, approved CPI benefits are paid directly toward the insured credit product – helping reduce or eliminate outstanding balances during periods of financial hardship.
Whether it’s job loss, disability, critical illness, or death, CPI is designed to offer timely support when a covered event occurs. And as part of Canada’s highly regulated financial services sector, CPI providers are required to follow strict claims processing guidelines to ensure fairness and transparency.
Myth #4: “If I already have mortgage insurance, I don’t need CPI.”
The Reality: Mortgage default insurance and Credit Protection Insurance serve completely different purposes.
- Mortgage default insurance (often required by lenders when borrowers are making a lower down-payment on a home) protects the lender—not the borrower—if a borrower defaults on a mortgage. It is required (in other words, is mandatory and not optional) by the federal government for all mortgages where the borrower makes a down payment of 20% or less.
- Credit Protection Insurance, on the other hand, is optional and protects the borrower and their family. It helps cover outstanding loan or mortgage balances if the insured person experiences a covered life event such as death, critical illness, disability, or involuntary job loss. These products are not interchangeable, and homeowners should consider how CPI can fit into their overall financial plan.
Myth #5: “CPI is automatically included with my loan or mortgage.”
The Reality: CPI is completely optional and requires the borrower’s explicit consent before being added to any credit product.
While some borrowers may choose to apply for CPI at the time of taking out or renewing a loan or mortgage, they are not obligated to purchase it. Reputable lenders and distributors of CPI ensure that customers fully understand the terms and benefits of CPI before enrolling. Consumers should review their coverage options carefully and ask questions to ensure they’re making the right decision for their financial situation.
Final Thoughts: Is CPI Right for You?
Credit Protection Insurance is not a one-size-fits-all solution, but it can be a valuable insurance product for Canadians looking to protect their financial future.
If you have outstanding debts—whether a mortgage, personal loan, credit card balance, or line of credit—CPI can provide protection, by helping manage those obligations in case of a covered event. It offers an added layer of financial protection that works alongside traditional insurance products, making it a viable consideration for many borrowers.
Before making any decisions, take the time to review your financial needs, ask questions, and consult with your lender or insurance provider to determine if CPI aligns with your overall financial plan.
