Do you have a line of credit account? If so, have you thought about what would happen if you couldn’t work and were unable to make your minimum payments?
That’s where a line of credit insurance policy may help.
There are so many bills to pay in life, and insurance premiums are just one of them. But while certain types of insurance are required — such as auto and home insurance — others are optional and are available to provide additional coverage.
Line of credit insurance is a unique and lesser-known type of insurance. Let’s take a closer look at this insurance product to help you determine if it’s worth paying for.
Key Points
- Line of credit insurance helps cover your credit line payments in the event of death, disability, critical illness, or job loss.
- Several factors impact the cost of your premiums, including your daily credit balance, type of coverage, your age, and the number of beneficiaries on the policy.
- While line of credit insurance may be helpful, consider other coverage options, like life insurance, disability or critical illness insurance, or building an emergency fund.
What Is Line Of Credit Insurance?
Line of credit insurance is an insurance product that covers you in the event that you’re unable to continue paying the outstanding balance on a credit product, like a line of credit.
This type of insurance can pay off any balance you still carry if you find yourself unable to pay it on your own, if you ever become seriously ill or injured. The policy will also kick in if you pass away, so your loved ones are not stuck paying your bills.
The premium you pay will depend on your age and the outstanding balance on your line of credit. Your policy would cover this balance in the event of an illness, injury, or death, up to a specified amount.
Learn more: Guide On How To Use A line Of Credit
What Is Covered Under Line Of Credit Insurance?
Line of credit insurance provides the following types of coverage
- Life Insurance Coverage: In the event of your death, your policy can pay up to a specific amount of your insured credit lines.
- Disability Protection: If you suffer an ailment that leaves you unable to work, your policy will pay you a monthly benefit temporarily.
- Critical Illness Protection: If you are diagnosed with a critical illness that prevents you from working, your policy will kick in to pay off the outstanding balance of your line of credit up to a certain amount as specified in your policy.
- Job Loss Protection: If you suddenly find yourself without an income after being laid off from work, your policy will pay a monthly benefit up to a specified amount as per your insurance policy for a temporary period of time.
The exact details of the payments made will depend on your particular insurance plan.
How Does Line Of Credit Insurance Work?
When you enroll in line of credit insurance, you agree to pay regular premiums, which are required to keep the policy in effect. If a covered event occurs, the insurer steps in to do one of the following:
- Pay off the remaining balance (in the event of death or critical illness).
- Cover monthly payments for a set period (in the event of disability or job loss).
With this plan in effect, your credit obligations will continue to be met even if your income is disrupted. This helps you avoid default and protects your credit score.
How Much Does Line Of Credit Insurance Cost?
The cost of your insurance premiums depends on several factors, including the following:
- Daily Balance: Your policy’s premiums are calculated based on the daily balance of your credit line up to a specific approved amount.
- Amount Of Coverage: The more coverage you choose, the more expensive your policy will be.
- Your Age: Older individuals are considered higher risk to insurers. As such, the older you are, the more you might pay for this type of insurance.
- Your Lifestyle: Certain lifestyle choices, such as smoking, can impact the premiums you’re charged.
Premiums will vary based on the type of coverage you want. For instance, with Scotiabank, if you’re between the ages of 18 to 30, you’ll be charged as follows:
- Life Coverage: $0.25 per $1,000
- Disability Coverage: $1.60 per $1,000
- Illness Coverage: $0.46 per $1,000
- Job Loss Coverage: $1.60 per $1,000
For example, if you have a balance of $10,000, you’d be charged roughly $39 per month. Costs increase with age.
Can I Get A Discount On Credit Insurance Premiums?
You may be able to qualify for discounts as offered by your insurance company. For instance, insurers typically offer premium reductions for policyholders who have more than one insurance product with the same provider. Inquire with your insurer about multiple policy product discounts.
Eligibility Requirements For Line Of Credit Insurance
To qualify for a line of credit insurance policy, you’ll need to meet specific criteria, including the following:
- Have A Minimum Amount In Your Credit Line: Your insurance provider will require that you hold a minimum amount in your line of credit account. For example, Desjardins requires that you have at least $10,000 in your credit line.
- Be Under A Specific Age: Depending on the exact type of line of credit insurance policy, you may qualify if you’re under a certain age. Using Desjardins again as an example, you must be 69 or under for life insurance coverage, or 64 or under for disability insurance coverage with life insurance coverage.
- Be A Canadian Resident: You must live in Canada as a citizen or permanent resident.
- Be The Borrower Or The Guarantor: Your name will need to be on the line of credit as the borrower or the guarantor on the account.
Pros And Cons Of Credit Insurance
A line of credit insurance policy can come in handy if the time comes, but there are also some potential drawbacks to consider:
| Pros | Cons |
| Ensures your family won’t be burdened by your debt. | Only covers your line of credit, not other debts or expenses. |
| Premiums can be added to your monthly credit payments for convenience. | Some insurers evaluate eligibility only after you make a claim, which can lead to denied payouts. |
| Helps maintain your credit and financial stability during illness or job loss. | If you already have comprehensive life insurance, this type of policy might not be needed. |
Alternatives To Line Of Credit Insurance
A line of credit insurance policy can protect you if you’re unable to continue making payments. However, other insurance plan options may be considered, some of which may offer more flexibility:
- Life Insurance: In the event of your death, your life insurance policy will pay a lump sum to your beneficiaries, who can use it to pay off debts, including a line of credit.
- Disability Insurance: This policy provides income replacement in the event that you become disabled and unable to work, not just debt coverage.
- Critical Illness Insurance: This type of coverage offers a lump sum of money to help with recovery and expenses.
- Emergency Fund: Consider taking some time to build an emergency savings account, which can reduce your reliance on insurance products.
Final Thoughts
If you’ve got a line of credit and typically carry a large balance on it, it might be worth considering taking out a line of credit insurance policy. But before you do, assess any other insurance product you have, such as life insurance, that may offer enough protection to cover any outstanding balances on bills, including your line of credit.
