Your financial institution may offer you credit or loan insurance when you get a mortgage, line of credit or other loan with them. This type of insurance is also known as creditor insurance or debt insurance.
This type of insurance helps cover your loan payments if you can’t make payments due to illness, accident or death. Benefits are paid to your creditors (the companies that you owe money to).
This type of insurance is optional. You must agree to buy the insurance for the lender to charge you.
You can give consent in the following ways:
- verbally
- in writing on paper
- in writing using an electronic format
Using a product or service does not mean that you’ve given consent.
This type of life insurance covers your loan payments in the event of your death. Your insurance company will use the death benefit to pay the remaining balance on the loan. The money from your death benefit will go to your creditor. The money won’t go to your family or beneficiaries.
For loans that have fixed amounts, such as a mortgage, the premiums are based on the original amount of the loan. As you pay down your loan, the premiums generally remain the same even though you’ll owe less on your loan. The death benefit will decrease as you make payments and the outstanding balance is reduced.
If you want your family or beneficiaries to receive a death benefit in the event of your death, you’d need to buy a separate life insurance policy.