There are many reasons Canadians choose to take out a loan or personal line of creditsuch as to purchase a new home or car, consolidate debt or fund a child's education. If you're considering a personal loan or line of credit, you might also want to look into considering creditor insurance.

Creditor insurance is a useful financial tool that can help you and your loved ones be prepared for the future, even if the unexpected happens.

What is loan and line of credit insurance?

Loan protection insurance is an optional insurance product that can help pay off or maintain your loan payments for a period of time in the event of illness, disability, or loss of life. The insurance can be connected to different types of loans, like those related to your mortgage, car and business loan.

Personal line of credit insurance is another type of optional insurance that can help pay the outstanding balance on a line of credit if you are diagnosed with a critical illness covered in your policy or in the event that you suddenly pass away. Line of credit protection insurance can also cover monthly payments if the borrower becomes disabled, or involuntarily lose their job.

You can purchase insurance coverage for your personal loan or line of credit through the institution that loaned you the money. Lending institutions may include banks, credit unions, mortgage brokers, car dealers, or caisses populaires (primarily found in Quebec). While lenders may offer insurance when approving a mortgage, line of credit, credit card, or loan, it is not compulsory. You can secure a loan or line of credit even if you choose not to purchase creditor insurance.

Learn about the types of creditor insurance protection available and which one is right for you

How does loan and line of credit insurance work?

If you decide to enroll in this coverage, you can use it to help safeguard your loan or line of credit balances or payments in the event of a loss of life, disability, job loss, critical illness, or terminal illness. The insurance company, or in some cases the financial institution, will provide you with a document called the Certificate of Insurance, which verifies the details of your coverage including:

  • What coverage you are eligible for
  • The cost of insurance coverage
  • Your maximum benefit
  • Any exclusions and limitations

Depending on the type of insurance you enroll in, your premiums will either be billed directly to your credit account, usually monthly, or may be charged from your personal banking account.  The cost of loan and line of credit premiums can depend on several factors such as:

  • The amount of your loan
  • The daily balance during the billing period
  • In some cases, your personal characteristics including age, sex, and overall health

If you need to make a claim, you can refer to your Certificate of Insurance for details on how to make a claim. You can likely start your claim online or over the phone. Most certificates of insurance will require you to make a claim within a specified amount of time, usually within 90 days to one year. It is important that you read your Certificate or Insurance carefully when you receive it to avoid any delays in having claims paid. If you successfully submit a claim, the creditor will then cover your payments, or payoff the outstanding balance of your loan or line of credit.

You can cancel creditor insurance protection at any time. You can find information on how to do so in your Certificate of Insurance.

Types of loan or credit insurance

There are several insurance options that you can consider depending on the product you hope to cover, including loan protection, line of credit protection or credit card protection.

Critical illness protection

If diagnosed with a covered medical condition specified in your certificate of insurance, critical illness coverage can help pay off part of or the remaining line of credit or loan balance. Be aware that pre-existing illnesses and medical conditions are not usually covered. You can confirm your coverage by contacting your insurance provider or by reviewing your Certificate of Insurance.

Terminal illness protection

Terminal illness protection pays the outstanding balance on your loan or line of credit up to a maximum amount, as outlined in your certificate of insurance. The definition of terminal illness may differ depending on your insurance provider. For Scotiabank’s insurance offerings, it’s defined as an illness that a physician diagnoses in writing and is likely to result in a loss of life within a year of that diagnosis. You can consult your Certificate of Insurance to confirm the details of your coverage.

Disability protection

If you have an accident or a disability that leaves you unable to work, disability protection can help you make regular loan or line of credit payments for a set period of time. Disability protection does not usually cover the entire balance of your loan and you are responsible for paying that balance according to the terms of your agreement.

Refer to your Certificate of Insurance for details on the disabilities it covers, the amount of the payments, and how long payments will last.

Job loss protection

You can use a job loss protection to help make monthly payments on your credit account if you involuntarily lose your job. An involuntary job loss typically includes layoffs, dismissal without cause or involvement in a walk out or legal strike.

Eligibility criteria for loan or line of credit insurance

To be eligible for loan or line of credit insurance, most insurers will require you to meet certain criteria on the date of your insurance application. Those may include:

  • Whether or not you are a resident of Canada
  • Minimum age requirements - usually 18 years old
  • Maximum age requirements - often between 64 and 69 years old

Depending on the credit limit or loan amount, you may also be asked to answer one or more health questions. Depending on the answers to the health questions, you might also be asked to take a medical exam.

To learn more about insurance coverage with Scotiabank, you can call 1-855-753-4272.

Is loan or line of credit insurance worth it?

When it comes to purchasing coverage, you might be wondering if loan or line of credit insurance is worth it. Like all kinds of insurance, it's difficult to assess its worth until something unexpected happens. If you experience something like a critical illness or injury, loan or line of credit insurance can help you and your loved ones avoid the additional financial stress.

A Scotiabank advisor can help you decide what will work best for you. You can discuss what options will work for your financial plan and how you can budget to accommodate the costs associated with loan or line of creditor protection. 

Ready to get your finances on track for your future? Come in and speak to a Scotia advisor today