What is Life Insurance for Personal Loans and Lines of Credit?
Life Insurance for Personal Loans and Lines of Credit helps protect your family or dependants by paying out the outstanding balance of your personal loans and lines of credit (up to the maximum specified in the certificate of insurance) in the event of your death. There is a maximum amount of debt than can be insured – typically Personal Loans up to a maximum of $150,000, and Lines of Credit up to a maximum of $250,000 to $750,000.
Who can apply for Life Insurance on Personal Loans and Lines of Credit?
Life Insurance on Personal Loans and Lines of Credit is available for consumers who have a borrowing relationship with their bank or credit union. A maximum of two borrowers can usually be insured per loan, and they can typically purchase the insurance while they are between 18 and 64 years of age (coverage usually continues until borrowers turn 70 or choose to end their coverage). While pre-existing health conditions are usually excluded from coverage during the first 12 months, a claim in the first 12 months resulting from a condition that is not pre-existing is eligible to be paid. And Life Insurance on Personal Loans and Lines of Credit typically covers all health conditions after the first year.
How do I get approved for Life Insurance on Personal Loans and Lines of Credit?
In most cases, health questions and medical examinations are not required to obtain Life Insurance on Personal Loans and Lines of Credit. For example, if the total amount of the Personal Loans and/or Lines of Credit you wish to insure is $100,000 or less, you may not be required to answer any health questions and coverage will be automatically approved. For situations where you wish to insure more than $100,000, you only have to answer a few health-related questions and no medical examination is required. If you answer ‘No’ to the health questions and your loan or line of credit is below a certain limit (typically $300,000), you’re usually approved. Answering ‘Yes’ to any of the health questions does not necessarily mean you won’t be approved; it simply means the insurer will contact you for more details.
Term life insurance can provide for your family’s future and may be an important part of your overall financial planning.
Similarly, Life Insurance on Personal Loans and Lines of Credit is a cost-effective way to help ensure that your debts will be looked after in the event of your untimely death. For many people, it provides a convenient opportunity to buy coverage as it is easily accessible at financial institutions across Canada. In addition, the amount of Life Insurance on Personal Loans and Lines of Credit is tailored to the exact amount of debt being taken on and sometimes in small amounts that may not be available in a Term Life Insurance policy.
With Term Life Insurance, the amount of coverage remains level throughout the term for which you have purchased coverage, but premiums usually increase at each renewal thereafter as you age, and these increases can be substantial. That said, one of the advantages of Term Life Insurance is that if you can buy a large enough policy, it will provide financial resources to your survivors for other things beyond paying off your personal loans.
Consumers who purchase Life Insurance on Personal Loans or Lines of Credit usually have the option to add disability and critical illness coverage, which adds further protection against not being able to make their loan payments.
Should you die before paying off your insured loans and lines of credit, the proceeds from your Life Insurance will go directly to your financial institution to pay out your loan balances (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 are the primary income earner.
Here’s an example of how Life Insurance on Personal Loans and Lines of Credit works:
Yasmin has a $150,000 line of credit with her financial institution, and she has borrowed $75,000 of that amount to pay for home renovations. She’s worried that should she unexpectedly pass away, that amount of debt could be a financial burden for her partner Angela to have to repay, especially while continuing to raise two children on her own.
So at the financial institution where Yasmin has the line of credit, she signs up for life insurance to cover the outstanding balance on the debt. Yasmin knows that this type of insurance will help protect her family and dependants by paying out the outstanding balance of her line of credit (up to the maximum specified in the policy) in the event of her death.
Yasmin takes comfort in knowing that should she pass away, she won’t be leaving her family with a large and unexpected debt to deal with during a difficult time.
You don’t need any kind of insurance to qualify for a personal loan– that decision is based solely on your credit worthiness for the amount of money you want to borrow.
The decision to buy Life Insurance on your Personal Loans and Lines of Credit should be based on a number of factors including the size of your loan, your net worth, your overall health, and whether you have dependants living with you whom you want to protect. If you feel your family could not afford to continue to make your loan payments in the event of your premature death, or even if they could but their financial future and quality of life would be compromised, you should consider purchasing Life Insurance on your Personal Loans and Lines of Credit, or Term Life Insurance, or both.
How much does it cost to buy Life Insurance on my Personal Loans and Lines of Credit?
The cost of Life Insurance on your Personal Loans and Lines of Credit will be determined by your age and the amount of coverage you obtain. All types of credit protection insurance coverage, including Life Insurance for Personal Loans and Lines of Credit, are provided under a group policy rather than being individually underwritten. This means more Canadians can be insured at economical standard group rates.
Where can I buy Life Insurance on my Personal Loans and Lines of Credit?
Many banks and credit unions in Canada, including most CAFII member financial institutions, offer Life Insurance on Personal Loans and Lines of Credit. Employees at CAFII member institutions are trained and knowledgeable about the products they sell, and they can be conveniently reached in branches or at call centres. In addition, you’ll find that the terms and enrollment process for Life Insurance on Personal Loans and Lines of Credit are relatively straightforward. You can find a list of CAFII member institutions at: https://members.cafii.com/index.php/members_voting.
