What Is Loan Insurance?
One thing that is often offered when you’re given a loan (and sometimes even on credit cards) are a little feature called “line of credit insurance” also known as Creditor insurance. What is this and how does it work?
When you take loan, insurance is offered to help you in the event of a disability or death. What it basically does is it’s a form of personal loan insurance that will pay off in two instances:
Death of loanholder
The death of the loanholder will cancel all balances up to $500,000 in the event of the borrower dying. The insurance can be bought up until the cardholder reaches the age of 69 years, at which time the holder is ineligible for this.
Disability of loanholder
When a loanholder is disabled and unable to work, the insurance will make your minimum payments plus pay off an additional 3% of your balance for up to 24 months as long as you remain disabled. Each month, the maximum amount that will be paid is $3,000.00.
The other thing that’s really nice and favourable about this type of insurance is that the benefits are non-taxable and do not have to be coordinated with other kinds of insurance that you might purchase.
What Does Personal Loan Insurance Cost?
Life Insurance Rates:
This depends on your age at the time you take the loan and is based on the value of the loan. A person who is 18 years of age, for example, can get the loan at $.12 for every $1000 of balance they carry. Whereas a person who is 69 will pay $1.32 per $1000 borrowed. These are monthly rates, and also remember that the loan amounts will be added to the balance, which may make the loan longer to pay off.
Disability Insurance Rates:
Disability rates are significantly higher because it’s much more likely that you will be disabled at your job which is considerably more. They use a different formula to calculate your premiums but it still depends on your age.
For every $100 of disability payments that are to be made, the rate depending on age will vary from $1.35 per $100 to be paid for 30 and under, up to $5.80 per $100 to be paid if you are aged 66 to 69. The upside to this is even though this kind of creditor insurance is pricey, this is per payment for each month and the insurance may pay 3% of your balance for a maximum of 24 months.
Are There Exclusions?
Like with all insurances, there are always clauses prohibiting suicide or if you are killed during a riot or committing a criminal offence. Generally speaking, this will be standard in any insurance clause. Personal loan insurance isn’t going to try to con you out of money. They just want to be sure if you’re disabled, it’s an honest injury and not something high-risk like going to war.
Should I Take the Insurance?
The straight answer is that it’s up to you. A line of credit insurance loan is something that can protect you if you work at a job in construction or one that uses your hands a lot, or if you just want a safety net to protect you in the event of some sort of workplace injury. The creditor insurance is there for you if you need it, but don’t let anyone convince you to take more than you need. Sometimes a banque or other institution will try high pressure tactics. Always make sure the terms for you are easy to read and comprehend and that you’re not being overcharged for your insurance.