- Life insurance on the debt
The insurance company pays the outstanding balance on the insured debt in the event of your death.
The original amount of the debt determines the premiums you pay. As you pay down your debt, the premiums generally remain the same even though you will owe less on your loan or mortgage over time.
The financial institution you owe the debt to is the beneficiary of any creditor life insurance policy on the debt. In the event of your death, the financial institution receives the death benefit not your family or heir(s). You would need to buy a separate life insurance policy if you want your family or heir(s) to receive a death benefit in the event of your death.
- Critical illness insurance on the debt
In most cases, the insurance pays the outstanding balance if you are diagnosed with one of the critical illnesses specified in the policy or Certificate of Insurance. Each policy or Certificate of Insurance lists which illnesses are covered and the requirements to qualify. 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 the 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 and other terms and conditions, including the amount of the payments and how long they would last. Read the policy carefully to know how long the insurance will cover the minimum payments.
- 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 and is subject to applicable New Brunswick taxes. You will also be charged your credit cardís interest rate if you do not pay the balance in full. 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
Source: Understanding Insurance Basics, page 2-27, Financial Consumer Agency of Canada, 2012. Reproduced with the permission of the Commissioner of Financial and Consumer Agency of Canada, 2013.
The FCNB does not endorse any designation or profession. You should always verify the personís qualifications before seeking advice. It is critical that you check an individualís registration or licence status, and the types of products or services they are registered or licensed to sell.