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Creditor Insurance

In the event that you are unable to make payments on your debts due to illness, accident or death, creditor insurance may continue to make the payments you would otherwise miss. Usually this insurance product covers one specific debt, such as a mortgage, line of credit, or a loan.

Things to consider before you sign up

Creditor insurance can have exclusions relating to pre-existing conditions, such as asthma, high blood pressure, or heart disease—read your policy carefully and make sure you know what is and is not covered. This is a good time to review your existing insurance coverage to make sure that you have enough coverage to help pay off your debts in case of death or a disability. You may also compare the coverage offered with other options that may offer better value for your needs.

Types of creditor insurance

Life insurance on the debt

In this type of life insurance, the insurance company pays the outstanding balance on your insured debt (mortgage or loan, for example) in the event of your death. In the event of your death, the financial institution receives the death benefit not your family or heir(s).

Critical illness insurance on the debt

In most cases, this insurance pays any outstanding balance on your insured debt if you are diagnosed with one of the critical illnesses specified in your policy or Certificate of Insurance. Pre-existing conditions are usually not covered, but some policies will pay benefits if you have been free of the illness for a period defined in the terms and conditions. Premiums are based on the amount of the debt.

Disability insurance on the debt

Disability insurance generally makes the minimum required payments on your insured debt, for a specified time, while you are disabled. It generally does not pay off the full outstanding balance. You will still be responsible for paying the balance when you recover or after the coverage period ends. Each policy will define the disabilities that would make you eligible for benefits.

Credit card balance insurance

Credit card balance insurance is usually a combination of several insurance products, including critical illness, disability, job loss and life insurance. If you become injured, disabled or lose your job, the insurance will make the minimum payments on your credit card, or will pay a specified percentage (usually 3-5%) of the outstanding monthly balance.

If you die or have a critical illness, the insurance company will pay off the credit card balance owing at the time of your illness or death. There is usually a maximum period of time for which benefits will be paid. The premium appears on your credit card statement every month. The premium will change each month depending on the balance you owe: the lower the balance, the lower the premium.

Credit balance insurance is optional and is not a condition for obtaining a credit card.