By Keith Martin, Executive Director, CAFII
For many Canadians, owning a home is a symbol of stability and achievement. Yet, beneath the surface, a trend has surfaced posing a significant gap in many families’ financial protection.,. Recent research conducted by LIMRA on behalf of the Canadian Association of Financial Institutions in Insurance (CAFII) reveals that 80% of Canadian homeowners surveyed are either uninsured or underinsured when it comes to life and health insurance. This statistic raises an important question: how prepared are we for the unexpected?
The implications of this insurance gap could be impactful. Life has a way of delivering challenges we don’t anticipate – a sudden illness, an accident, or even the loss of a family member who contributes to household income. Without adequate insurance coverage, such events may lead to financial strain that jeopardizes a family’s stability. Managing mortgage payments, maintaining a standard of living, or even simply staying afloat can quickly become insurmountable.
Credit protection insurance (CPI) is one option available among others to help homeowners manage financial risks associated with their mortgage. Typically offered through lenders when a mortgage or loan is placed, CPI can reduce or pay off the loan balance in the event of death, critical illness, or disability, and in some cases, cover payments during periods of job loss. While not the only form of insurance available, its accessibility at the time of securing a mortgage makes it a good choice for many.
For example, consider a Canadian family with a $300,000 mortgage. If the primary income earner passes away unexpectedly and lacks adequate insurance, the surviving family members may have to use their savings to cover monthly mortgage payments – or worse, risk losing their home due to insufficient funds to service their debts.
In contrast, if the same family had credit protection insurance (CPI) for their $300,000 mortgage covering the primary income earner, the CPI could reduce or pay off the remaining mortgage balance if an insured event, such as the death of a covered borrower, occurs. This could mean the surviving family members can maintain their standard of living and potentially avoid the consequences of being underinsured or uninsured.
What sets CPI apart is its simplicity and accessibility. Offered directly at the time of securing a mortgage, it provides a convenient and timely option for homeowners looking to protect their financial future. While CPI is not the only form of insurance available, its ease of access makes it a practical choice for many families.
Credit protection insurance (CPI) plays an important role in the mix of insurance options available to consumers, especially for low-income homeowners who are disproportionately affected. Nearly half of these homeowners are uninsured, and among those who are insured, 75% are underinsured, with policies covering less than seven to ten times their income—as defined by the Financial Consumer Agency of Canada. Our study, which surveyed over 1,175 Canadian homeowners across various income brackets, revealed significant disparities in insurance coverage. While 55% of homeowners with a mortgage, home equity line of credit, or both have some form of CPI, low-income homeowners have significantly fewer CPI products.
This gap highlights an opportunity to educate homeowners on the benefits of CPI and the role it plays as part of a family’s overall financial plan to help support financial security. Financial literacy is a critical part of addressing this issue. The survey uncovered those homeowners, particularly those in lower-income brackets, are hesitant to seek financial advice, with approximately 38% of surveyed respondents stating they neither have nor wanted a financial professional to assist them. This reluctance underscores the importance of creating simple, accessible resources that empower individuals to make informed decisions about their financial futures.
Financial attitudes and concerns are another insightful aspect of the research. Among low-income homeowners, 48% reported being somewhat or not at all financially knowledgeable, and 53% are primarily concerned with paying monthly bills, while 44% worry about having enough money for comfortable retirement.
The government’s focus on enhancing financial inclusion, as highlighted in the recent 2024 budget, aligns with our study’s findings and presents an opportune moment for financial institutions, insurance providers, and policymakers to collaborate on closing the insurance gap by:
- Raising awareness about the importance of financial protection and the options available.
- Providing tailored educational programs and information to underserved communities.
- Developing insurance products that are inclusive and flexible to meet the needs of diverse households.
For example, simplified application processes and flexible payment options could make insurance more accessible to underserved markets. Effective and efficient government regulations can help play a role in safeguarding homeowners by making sure they have access to adequate insurance. Ultimately, the issue goes beyond any single solution. Whether through CPI or other forms of insurance, what matters is that Canadian homeowners are equipped with the tools and knowledge to safeguard their families and their futures. By fostering a better understanding of the options available and addressing barriers to access, we can help close this critical gap in financial security.
The conversation about insurance is, at its core, a conversation about resilience. As we navigate uncertain times, ensuring homeowners are offered insurance protection options is not just about financial stability—it’s about peace of mind and the ability to weather life’s unexpected storms.
