What is credit or loan insurance?

Credit or loan insurance provides coverage that may help you pay off your loan or make your loan or credit card payments in the event of job loss, critical illness, accident, or death.

Credit or loan insurance is usually offered at the time your mortgage, line of credit, credit card, or loan is being approved. You can also sign up for it later.

This type of insurance is also known as:

- creditor insurance
- balance protection insurance
- balance insurance
- debt insurance

Credit or loan insurance is a separate product from a loan or credit card. You do not have to take this insurance to be approved for a loan or activate your credit card.

Not all credit and loan products will offer the same type of insurance coverage. For example, you may be able to get life insurance and critical illness insurance coverage on a line of credit, but not disability insurance.

Compare insurance coverage and cost with the coverage you may have through an individual plan or your employer in case of death, critical illness, disability, or job loss. You can also compare the coverage offered by other insurance products, such as term life and health insurance.

Types of credit or loan insurance

Depending on the product you’re getting insurance for, there will be different types of insurance coverage available.

Life insurance to pay off credit or loans

This type of life insurance can cover the remaining amount of your loan in the event of your death. Your insurance company will use the death benefit to pay down or pay off the remaining balance on the loan, up to a maximum amount outlined in the certificate of insurance. The money from your death benefit will go to your creditor. The money won't go to your family or beneficiaries.

Critical illness insurance on credit or loans

This type of insurance can help to pay off or pay down the remaining balance on your credit or loan if you're diagnosed with one of the critical illnesses specified in your certificate of insurance.

Disability insurance on credit or loans

This type of insurance can help to ensure that the regular payments on your loan or credit card will be made for a certain period if you become ill or have an accident that leaves you unable to work and earn an income. It generally doesn't pay off the full outstanding balance of your loan.

Getting credit and loan insurance

You usually get credit or loan insurance at the same business where you get your loan, line of credit, credit card, or mortgage.

This includes:

- banks
- credit unions
- mortgage brokers
- car dealers
- stores that offer credit cards

Eligibility for credit or loan insurance

To find out if you’re eligible for credit or loan insurance, you usually need to:

- be above the minimum age to qualify, usually 18 years old
- be under the maximum age to qualify, often between 65 and 70 years old
- respond to a short health questionnaire of ‘yes’ or ‘no’ questions.

Based on your answers to the health questionnaire, you may be approved right away, or you might need to take a medical exam before you can be approved.

Your insurance won’t be valid if you do not provide accurate answers to this questionnaire. This means a claim won’t be paid, even if you’ve paid premiums. Take your time in answering the questionnaire carefully and truthfully. Understand if you’re eligible for coverage and ask questions if you have any. Take the documents home with you or consult with a medical professional if needed.

You may lose your coverage if:

- you’re over your credit limit
- you owe any payments that are past the due date
- you have recent dishonored payments on your account

Dishonored payment happens if an automatic payment does not go through because you've reached your credit limit.

Keep in mind that after you make a claim, the insurance company that provides insurance can more fully investigate. They do this to make sure you answered the questions on the application accurately and that you met the eligibility requirements to apply that are included in the terms and conditions in the certificate of insurance. If you didn’t answer the questions on the application accurately, or the circumstances of your claim don’t meet the terms and conditions, the insurance may not be valid, and your claim may not be paid.