Frequently Asked Questions
Q: What is Credit Protection Insurance?
A: Credit Protection Insurance, also known as Creditor’s Insurance or Creditor’s Group Insurance, is used to pay out a mortgage or loan balance (up to the maximum specified in the certificate of insurance) or to make/postpone debt payments on the customer’s behalf in the event of death, disability, job loss or critical illness. It can be obtained for a variety of debt obligations, including mortgages, consumer loans, lines of credit, and credit cards. It is sold by banks and credit unions across Canada, including by CAFII member financial institutions.
Here are two examples of how Credit Protection Insurance works:
Marie takes out a $250,000 mortgage with a 20-year amortization period to buy a home. She is the main income earner, and does not want to leave her surviving family with any mortgage debt if she dies before the mortgage is fully repaid. So she purchases Mortgage Life Insurance (which is a form of Credit Protection Insurance), which gives her the comfort of knowing that should she die, her outstanding mortgage balance will be paid out (up to the maximum specified in her certificate of insurance) and the surviving members of her family will be able to remain in their home without financial duress.
Alex gets a credit card from his financial institution. He purchases Credit Protection Insurance for this card so he will have protection against a number of potential risks, such as job loss, disability, accidental death, dismemberment, and critical illness. In the case of involuntary job loss or disability, Alex’s Credit Protection Insurance will make the minimum monthly payments to the card issuer on his behalf to maintain his good credit rating. In the case of accidental death and dismemberment, or a critical illness, Alex’s Credit Protection Insurance will pay off the full outstanding balance on his credit card (within a prescribed range).
Q: Is there a maximum amount of mortgage balance I can insure?
A: Most policies have a maximum limit on the amount of coverage one borrower can be insured for across all of his/her mortgages. This maximum amount will be explained when you apply for Mortgage Life Insurance, and will be documented in your certificate of insurance. But even if your starting mortgage balance is higher than the maximum insured limit, you can still insure it up to that limit.
Q: What are the benefits of Credit Protection Insurance?
A: This type of insurance has multiple benefits. For example, if you are unable to make debt repayments due to reasons such as death, disability, critical illness or job loss, Credit Protection Insurance ensures that the debt is paid out to the maximum limit of the policy (in the case of death and critical illness) or that the loan payment is made or postponed on your behalf (in the case of disability or job loss). This will ensure your loan remains in good standing and protect your credit rating. Second, the group policy structure of Credit Protection Insurance allows more Canadians to be insured at economical standard rates, and almost all applicants are accepted. Third, Credit Protection Insurance is easy to obtain. With well-trained and supervised salaried staff at banks and credit unions, Canadians have coast-to-coast access to simple, optional insurance coverage on a 24/7 basis through more than 8,000 branches, telephone contact centres, and online. Fourth, Credit Protection Insurance is offered in exactly the amount of debt being taken on; and, as an optional benefit offered alongside a loan or mortgage product, it is inherently timely and convenient. Fifth, Credit Protection Insurance provides some forms of protection that are not readily available elsewhere, such as job loss insurance.
Here’s an example of how Credit Protection Insurance works:
Alisha would like to purchase job loss insurance so she can continue to make debt payments and maintain her good credit rating should she involuntarily lose her job. But for individuals, job loss insurance is difficult to find and expensive to purchase. So Alisha decides to purchase Credit Protection Insurance on her credit card, knowing that job loss insurance is a key component of that coverage. In addition, since this type of insurance is normally sold as a part of a group policy, it is usually less expensive than buying job loss insurance as a separate coverage on its own. With this protection, if Alisha involuntarily loses her job, she can count on her insurance to make the minimum monthly payments on her credit card balance.
Q: If I make a claim one day, how can I ensure it will not be denied?
A: Insurance companies that offer Credit Protection Insurance conduct a thorough and fair review of all claims to ensure that they comply with the terms and conditions stated in the certificate of insurance, a key document with which all insured people should become familiar. According to an independent actuarial study conducted by the global consulting firm Towers Watson, 95% of Mortgage Life Insurance claims are paid.* Typically, if a claim is rejected, it is because it has violated one of several exclusions which are standard throughout the life and health insurance industry. They include:
- Suicide within the first two years of coverage;
- Self-inflicted injuries;
- Self-employed persons and voluntary job loss, with respect to job loss insurance;
- Death while committing a criminal act such as drunk driving; and,
- Customers who were not eligible for insurance when they applied.
Here is an example:
Tom voluntarily quits his job. He then informs his insurance company that he wants his job loss insurance to begin making minimum monthly payments on his credit card balance until he finds new employment. Unfortunately, because Tom voluntarily quit his job, he does not meet the requirements for protection under the job loss insurance provisions of his Certificate of Insurance.
Q: How can I learn more about the various insurance products sold by financial institutions?
A: The objective of CAFII members is to give customers the information they need to make informed decisions about the various types of insurance they want to purchase. This is accomplished through product brochures, insurance certificates, websites, and highly trained sales staff in branches and call centres. Customers are encouraged to take all the time they need to understand which products best meet their needs. And once they make a decision, customers are provided a “free look” period (typically 30 days), during which they can have insurance coverage and then cancel with a full refund of the premium paid, if it does not meet their needs.
Here is an example:
After reading a brochure and talking to sales staff at a call centre, Brianna decides that she wants to purchase Credit Protection Insurance to cover the balance on her new car loan. However, three weeks later she changes her mind and decides she no longer wants this insurance. So Brianna contacts her financial institution, cancels the policy, and obtains a full refund.
Q: What are the benefits of Credit Protection Insurance compared to traditional Term Life Insurance?
A: Credit Protection Insurance for mortgages and loans is convenient, price-competitive and easy to obtain. For example, most applicants for this type of coverage are insured immediately without the need for additional health questions or medical tests. In addition, Credit Protection Insurance covers a broad range of risks, and people the same age pay the same standard group insurance premium rate regardless of health or occupation. Pricing of traditional Term Life Insurance, on the other hand, varies according to a number of factors including occupation, gender and smoking habits. Credit Protection Insurance also typically offers job loss insurance, which is difficult to find as an individual insurance coverage. In addition, for many people, Credit Protection Insurance provides a convenient opportunity to buy coverage as it is easily accessible at financial institutions across Canada.
Here is an example:
Karim wants a convenient, hassle-free and competitively-priced way to insure his mortgage. He is too busy to do medical tests, wants a premium that once established won’t go up as he ages, and would prefer to have job loss insurance included in his protection. After researching his options, Karim decides to get Credit Protection Insurance on his mortgage from his financial institution, and benefit from the group rates it can provide.
Q: Is there someone who can help me apply for Credit Protection Insurance?
A: Yes, all CAFII member financial institutions that offer Credit Protection Insurance have employees who are thoroughly trained on the products they sell, and who can be conveniently reached in branches or at call centres. In addition, you’ll find that the terms and enrollment process for Credit Protection Insurance products are relatively straightforward.
Here is an example:
Pat is considering Credit Protection Insurance for the personal loan he is getting from his financial institution, but he has a few questions. So he makes a toll-free call to his financial institution’s call centre, asks to speak to someone about insurance, and gets connected with an employee who is trained and knowledgeable about Credit Protection Insurance. After getting his questions answered, Pat has a good understanding of what he is buying, and how the product will work.
Q: Do I have to buy insurance to get my mortgage, loan or credit card approved?
A: No. Credit Protection Insurance is completely optional. In addition, coercive tied selling, which means making the purchase of one product contingent on the purchase of another, is against the law. Negative option marketing, which is automatically selling you something unless you proactively decline, is also illegal. These practices are not permitted and are not used by CAFII member financial institutions.
Here is an example:
Michelle is hoping to get a consumer loan from her financial institution, which will make its lending decision based upon her credit rating and/or future income earning potential. She understands that buying Credit Protection Insurance is a totally separate issue that has no impact on the credit-granting decision. Michelle decides she doesn’t want insurance on her loan balance, and her request for a loan is approved solely on the basis of her credit rating.
Q: Can I change my mind and cancel my insurance coverage?
A: Yes. Customers have a “free look” period (typically 30 days) during which they have insurance coverage and can cancel with a full refund of the premium paid. After the free look period is over, customers can cancel their coverage at any time and pay no further premiums.
Here is an example:
When Todd gets his mortgage, he decides to buy Credit Protection Insurance on it. However, three weeks later, Todd changes his mind and decides to cancel the insurance. Since Todd is still within the “free look” period, the first month’s premium he paid is fully refunded, and the insurance coverage is discontinued.
Q: If I purchase Mortgage Life Insurance, why doesn’t my premium decrease as my mortgage balance decreases?
A: Unlike with individual term life insurance where your premium will likely increase at regular intervals as you age, the premium for Mortgage Life Insurance remains stable over the full duration of your mortgage with your financial institution because it was designed to provide you with a predictable, constant and affordable premium throughout the entire life of your mortgage. If your mortgage balance is reduced to a level where you no longer feel the cost of having life insurance on it is worthwhile, you can always choose to cancel the coverage and pay no further premiums.
Q: Who gets the money from my Mortgage Life insurance if I die?
A: The proceeds will go directly to your financial institution to pay out your outstanding mortgage balance (up to the maximum specified in the certificate of insurance), leaving your family with one less debt to handle at a very stressful and financially challenging time, especially if you have been the primary income earner. By directly covering a large and specific debt obligation with your Mortgage Life Insurance, your heirs will be free to use proceeds from other life insurance policies they may have to pay other bills and provide future income for their family.
Here’s an example of how Mortgage Life Insurance works:
Vicky and Bob, who have two children, have been approved for a $500,000 mortgage to purchase a home. Vicky is the primary income earner, and the family’s ability to make their mortgage payments is largely dependent upon her income.
Peace of mind and predictability of expenses are important for Vicky and Bob, so they purchase Mortgage Life Insurance for Vicky that will pay off the balance of their mortgage in the event of her death. They like the fact that their premiums will not change over the life of their mortgage, which means that they are not exposed to higher costs for this coverage as Vicky ages or possibly develops health issues.
They also like the fact that the proceeds of her mortgage life insurance will go directly to pay off the mortgage balance rather than possibly being used to pay other debts. It’s important to Vicky to know that, should she die, her family will be able to continue living in their family home, without financial duress.
Q: When do financial institution insurers assess whether my current medical situation qualifies me for the insurance coverage I want and may one day make a claim for?
For products where you need to answer a brief medical questionnaire up-front such as for Mortgage Life Insurance and Mortgage Disability Insurance, that assessment is made at the time of application. If you answer ‘NO’ to all of the applicable health questions on the application form, then your application is usually accepted and the insurer does not require any additional health information. If you answer ‘YES’ to any of the applicable health questions, you will be asked to provide additional information through a health assessment; and, in some cases, your application may require further underwriting assessment before an approval decision is made.
According to an independent actuarial study conducted by the global consulting firm Towers Watson, 95% of mortgage life insurance applications in Canada are approved*. Approval for Credit Protection Insurance using health information means that at the time of claim, the benefit will not be limited due to a medical condition that was disclosed during underwriting. The insurer will, however, review the health information that was provided at the time of application for accuracy and completeness. This is a normal part of insurance claim assessment for all types of life and health insurance.
Underwriting is a term used by life insurers to describe the process of assessing risk, and ensuring that the cost of the coverage is proportionate to the risks to be borne by the insurance company. Most types of Credit Protection Insurance coverage, including Mortgage Life and Mortgage Disability Insurance, are provided under a group policy rather than being individually underwritten. Credit Protection Insurance covers a broad range of risks and every one of the same age pays the same rate regardless of health or occupation.
For products where there are no health-related questions asked up-front, such as for credit cards and small amounts of insurance on loans and lines of credit, you are provided with a certificate of insurance that spells out the circumstances where any pre-existing medical conditions would limit a benefit should you make a claim within the first 12 months of coverage.
The use of a pre-existing condition limitation does not prevent you from obtaining credit protection insurance at standard premium rates, and it allows you to make a claim at any time for conditions that did not exist before you bought the insurance. In addition, after the pre-existing condition period of the first 12 months has passed, you can make a claim for the pre-existing conditions as well.
Here are some examples:
Karim submits a brief health questionnaire that is required to obtain his Mortgage Life Insurance. Karim answers “NO” to all of the applicable health questions on the application form. Karim is accepted for coverage. If a claim is later submitted on Karim’s behalf, assuming Karim completed the health questions accurately, his claim would be eligible for a benefit subject to general limitations in the policy.
Marsha applies for Disability Insurance on her car loan. There are typically no health questions required for Disability Insurance on Personal Loans. Marsha is given a certificate of insurance that explains what a pre-existing condition is and how it affects a potential claim for benefits. If Marsha were to submit a claim for benefits within the first 12 months of coverage, the insurer would assess at that time whether the condition for which she is making a claim meets the definition of a pre-existing condition listed in the certificate of insurance; and, if so, the benefit will be limited accordingly. If Marsha were to submit a claim in the first 12 months of coverage caused by a condition that was not pre-existing, the claim will be eligible for a benefit. If Marsha were to submit a claim two years after the coverage is in place, the claim will be eligible for a benefit regardless of whether the condition leading up to the claim was a pre-existing one.
Geoff buys Mortgage Life Insurance and answers ‘Yes’ to one of the health questions on the brief health questionnaire. The insurer requests that Geoff complete some medical tests and makes a decision to approve Geoff for the insurance. Like all other clients who have that particular Mortgage Life Insurance coverage, Geoff will pay the standard group premium rates. Because Geoff was underwritten for his Mortgage Life Insurance, he will not be subject to a pre-existing condition limitation. In other words, the insurer assessed his medical condition and decided it fell within the risk parameters of the insurance policy. If Geoff were to make a claim at any time, the insurer will thoroughly assess the claim, as is standard practice in the industry, and will review the health information that Geoff provided at the time of application for completeness and accuracy. If the claim is related to Geoff’s medical condition discovered during the application process and the insurer finds that Geoff provided complete and accurate disclosure of his condition at that time, Geoff’s eligibility for a benefit will be the same as the eligibility of any other person who did not have that same medical condition.
Q: Does Credit Protection Insurance provide good value?
A: An independent actuarial study conducted by the global consulting firm Towers Watson* compared the average premium rate per unit of life, disability, and critical illness insurance available under the Credit Protection form of insurance to the average premium rate per unit of identical amounts of individual insurance coverage. The study found that:
- credit protection disability insurance is less expensive than Class 2A (i.e. clerical employees) individual disability insurance for all ages, amounts and genders;
- credit protection critical illness insurance is less expensive than individual critical illness insurance for all ages, amounts and genders. However, while critical illness credit protection covers the three most common type of illnesses for which benefits are paid, its total coverage is not as broad as individual coverage**; and
- credit protection life insurance is less expensive than individual Term 10 life insurance (renewed once over 20 years) for almost all (94%) of the customer profiles covered in the study, and is less expensive than Term 20 life insurance for more than half (55%) of the customer profiles covered in the study. The individual term life insurance products offer a level amount of coverage compared to the declining coverage under the credit protection insurance product.
The Towers Watson study also showed that applications for Credit Protection Insurance are significantly more likely to be auto-approved than are individual insurance (life, critical illness and disability) applications; and therefore fewer consumers have to go through the more complex and time-consuming underwriting process that is often involved in obtaining individual life insurance coverage.
** The three illnesses commonly covered by Creditor Critical Illness Insurance products are cancer, heart attack and stroke. According to the Munich Re Individual Life Insurance Survey based on individual policy claims in Canada until the end of 2009, cancer, heart attack and stroke are the most common types of illnesses for which benefits are paid for Individual Critical Illness policies. These three illnesses account for 86% of paid claims.
Q: Where do I go if I have a complaint?
A: The best place to start is with the financial institution that sold you the insurance, which typically has customer service staff and an Ombudsperson who investigates unresolved customer complaints. If you are not satisfied with the response of your financial institution, you can escalate your complaint to the OmbudService used by your financial institution. Your CAFII member financial institution can advise you on the complaint escalation process. While the number of complaints about Credit Protection Insurance is very small, every complaint is taken seriously and given the full attention it deserves.
Here is an example:
Carol is unhappy with the length of time it took to resolve an insurance claim she made. She puts all the facts together in a letter and sends it to the financial institution that sold her the insurance. The matter is investigated and a resolution proposed, but Carol is not satisfied with it. If her financial institution has an Ombudsperson, Carol contacts that person and asks for her case to be reviewed. If Carol is still not satisfied with the response from the Ombudsperson at her financial institution, she sends the file to the independent OmbudService used by her financial institution, which conducts its own investigation and makes an independent recommendation.
If you are not satisfied with the response you have received to a complaint, there are additional resources available to you. Please visit our Enquiries and Complaints section: click here