Creditor insurance is a safety net for you and your family. It can help you pay your debt or keep up with payments if you are diagnosed with a critical illness, become disabled or pass away.
Have I ever told you about my friend Stan?
Stan met my wife in university, and we’ve all been friends for over 30 years. When my wife and I got married Stan stood up with us as we pledged our lives to each other. (Ah, what a sweet memory).
Anyway, about 10 years ago Stan got a headache while attending a funeral in New Brunswick. It was a hot day and he just figured he hadn’t eaten enough the day before. That night, after a long, stressful day, Stan sat down and logged in to an online chess match to relax.
That’s all he remembers.
Stan woke up 24 hours later in the hospital and was told he would need major brain surgery. Turns out he’d had a seizure caused by a golf ball sized tumor pressing against his ocular nerve.
Thank-fully it wasn’t cancer but at just 39 years old his world changed forever. He couldn’t walk due to vertigo for 6 weeks, couldn’t work for 8 months, and couldn’t drive for almost 5 years.
As scary as Stan’s situation was, this isn’t a bad news story.
You see, Stan is smart. Just a few weeks before he flew to New Brunswick, Stan met with his financial advisor (not me, I wasn’t in the business yet), and they determined that he needed some additional Life and Disability Insurance. His Group Benefits at work wouldn’t be enough to maintain his lifestyle should something happen. The policy he bought went into effect literally two days before his big seizure. Good thing, because without it, Stan might have lost his house while he recovered from his multiple surgeries.
What Stan bought was essentially creditor insurance.
What is creditor insurance?
When you get a house, loan, line of credit or a credit card, you want to know you won’t lose them should anything happen to you. You also want to make sure your loved ones aren’t stuck with debts they are unable to handle.
This is where creditor insurance comes in. Sometimes known as creditor protection, it can pay your mortgage or loan balance or help make debt repayments on your behalf, in case the unexpected happens.
The unexpected can be a critical illness such as life-threatening cancer, heart attack, stroke, your death or any involuntary health related time off work, like Stan’s tumor.
How does it work?
Creditor insurance can make a lump-sum payment towards your loan or make regular payments directly to your lender. The maximum amount and number of payments, and other terms of coverage, may differ depending on the lender and loan product. They will be specified in your certificate of insurance provided on enrollment.
What can you insure?
- Your mortgage
- Your loan and line of credit (personal or business)
- Your outstanding credit card balance
How do you get it?
You can apply for creditor insurance directly from most banks and other lenders when you arrange your loan. You can also apply for a standalone product through a financial advisor like me. The cost of insurance or the premium will depend on the coverage you enroll for. You will need to fill in a separate application for insurance and may need to answer a few health questions. However, in many cases you may even automatically qualify for coverage. If you decide to cancel your insurance later, you’re free to do so at any time.
What does it cover?
- Critical Illness
- Health related job loss
I’ve been helping people with their financial plans for just about 10 years now. One of the reasons I got into this business was that I saw how a good financial plan helped my friend Stan. He’s doing fine now by the way, a testament to some great doctors a patient family, and of course, a solid financial plan. Things could have tuned out so much worse.
What about you? Have you, or anyone close to you experienced an unexpected health related job loss or work interruption? Did they have enough insurance to weather the storm?
Tell me your story in the comments….