Although it’s not good news, have you ever thought about what would happen if you suddenly passed away? Do your family members have the financial capacity to cover your loan payments in addition to current expenses? To avoid leaving your debts to your heirs, you may want to consider loan insurance. This type of insurance is advantageous for both you and your creditors. In the event of your death, the insurer will take charge of the remaining capital due to the lender. On the other hand, the creditor is guaranteed to recover the capital loaned, even if you can no longer pay the remaining installments.
ADDITIONAL PROTECTION
Loan insurance offers protection in the event of death, but also in the event of total disability or critical illness. Major illnesses include cancer, heart disease, and stroke. However, there are about 20 other diseases listed by insurance companies.
1. LOAN INSURANCE IN CASE OF DEATH
In the event of death, the insurer will pay the insured balance of your loan directly to your creditor rather than passing the money through the estate. This avoids delays and ensures that your loved ones are released from your financial obligations quickly. However, a life insurance policy would be more advantageous depending on your budget. Indeed, for more or less the same monthly amount, the value of the loan insurance benefit decreases as the capital of the debt is being reimbursed. With life insurance, the death benefit remains the same and the money goes directly to your loved ones. If they have no more debts to pay, that money is theirs.
2. LOAN INSURANCE IN CASE OF TOTAL DISABILITY
The benefits offered by the government in the event of disability are far from competing with the salary you would have earned while working. Unfortunately, your financial obligations will not disappear. Loan insurance will provide you
with a monthly benefit to help you make your loan payments.
3. IN CASE OF CRITICAL ILLNESS
If you become critically ill, you will receive a tax-free payment to ease your financial burden. You can use this amount as you need it, whether it’s to pay for uncovered medical care or your
regular living expenses in the absence of a salary. This coverage will allow you to focus on your recovery without having to think about financial problems.
4. SUPPORT SERVICES
Some insurances also offer a 24-hour toll-free assistance service. This may include medical advice or referrals, recovery assistance, psychological help or legal advice.
KNOW THE RISKS
No one can predict the future. However, statistics don’t lie:
- According to Statistics Canada, one in seven Canadians is currently disabled and one in three workers will experience a period of disability of more than 90 days during their working life;
- According to the Institut de la statistique du Québec, the odds of becoming disabled or having a serious illness are nine times higher than losing one’s life before age 65;
- 2016 data from the Canadian Cancer Society indicates that two in five Canadians will develop cancer in their lifetime and 60% will survive for at least 5 years. For people that had a stroke, this figure rises to 75%.
- According to the Canadian Cancer Society, 17% of all cancers occur in people between the ages of 50 and 59, while nearly 20% of breast cancers are found in women under the age of 50
years old.
Are you like most working Canadians and underestimate the risk? Statistics like these are plentiful. The risk is real and worth considering. To get an idea of the risk of disability related to your personal condition, you can use an application available at www.disabilitycanhappen.org. Designed by an American organization, the Council for Disabilty Awareness, this web application allows you to evaluate your risk of disability by linking it to the financial risk that accompanies it.
WHY IS LOAN INSURANCE IMPORTANT?
According to the Canadian Life and Health Insurance Association (CLHIA), a person covered by a group insurance plan at work generally receives between 60% and 85% of his or her salary during a period of absence. For
many, the shortfall is dramatic. If you are fighting illness, loan insurance can help maintain your standard of living by covering the insured portion of your payments, allowing you to focus on your recovery. In case of death, it can also allow your relatives to mourn in serenity, freeing them from financial obligations. In short, such protection would help you meet your financial obligations associated with your loans, no matter what happens.
LOAN INSURANCE IS IMPORTANT, BUT NOT MANDATORY
From a legal standpoint, loan insurance is not mandatory. However, in practice, the lender of a large amount often adds this obligation in the contract.
SUBSCRIPTION CONDITIONS
If you choose to purchase loan insurance, you will be asked several questions related to your situation. Depending on the amount requested and/or your age, a declaration of good health or a medical questionnaire may be required. The purpose of these underwriting conditions is to allow the insurer to estimate as accurately as possible the risk you represent. The answers you provide will allow the insurer to determine your eligibility, the coverage provided and your interest rate.
It is important to assess your actual needs before purchasing insurance on a loan. Your insurance broker can help you with this.