What is Credit Payment Protection Insurance for personal loans?
Credit Protection Insurance for personal loans includes Life, Disability, Critical Illness and Job Loss coverage. This coverage is designed to pay out your outstanding loan balance (up to the maximum specified in the certificate of insurance) in the event of your death or diagnosis of a covered illness; or to make ongoing monthly payments to your personal loan in the event that you become disabled and are unable to work or you involuntarily lose your job.
Martine and Joseph have been approved by their bank or credit union for a $30,000 personal loan to purchase a car. Should one of them pass away before most of the car loan is repaid, the surviving spouse may find it difficult to continue making the monthly payments on the loan.
So Martine and Joseph purchase life insurance on their personal loan. In the event that one of them passes away, the insurance will pay out the outstanding balance on their insured loan (up to the maximum specified in the certificate of insurance), making it more likely the surviving spouse can keep the car.
Martine could just have insured her life for the loan, but since both spouses are working and contributing to the household finances, she wanted Joseph’s life to be insured, too. And insuring two people on the same loan is a better deal, as premiums for the second person are usually 30% to 50% less than for the first person.
When Nick’s friend became temporarily disabled in an accident and was not able to make monthly payments on his personal loan, the family car was repossessed. That’s because Nick’s friend, like nearly one-third of Canadians today, did not have enough rainy day savings to cover even one month of expenses.
So when Nick borrowed $40,000 from his financial institution to buy a car for his own family, he decided to purchase Disability Insurance on his Personal Loan as part of a bundle that included Life Insurance and Critical Illness Insurance. “I wanted to have a safety-net,” he told friends.
Nick was comforted by the fact that should he be unable to work due to a short-term disability, the regular payments of principal and interest on his insured loan and the applicable insurance premium would be paid for a designated period of time – usually starting after a 30- to 60-day waiting period, and continuing for up to 24 months.
Nadine has a $25,000 personal loan that she used to purchase a new car.
Nadine is worried that should she unexpectedly experience a serious illness such as heart attack, stroke, or life-threatening cancer, she may not be able to continue making payments on her loan and keep the car and her good credit rating.
So at the financial institution where Nadine took out the personal loan, she signs up for Critical Illness Insurance to cover the outstanding balance. Nadine knows that this type of insurance will pay out the outstanding balance on her loan (up to the maximum specified in the certificate of insurance) in the event that she contracts one of the named critical illnesses covered under the policy.
Unfortunately, three years after buying her new car Nadine has a stroke. While she is expected to recover, it could take a year or more. However, since Nadine has Critical Illness Insurance on her personal loan, her insurance pays off the balance owing on the loan, relieving her of a financial worry during a stressful and trying time.