Line of Credit Insurance: Is it Worth it?

Posted on April 20, 2010 and updated April 11, 2019 in Insurance Types, Life Insurance Canada News, Permanent Insurance, Term Insurance 3 min read

 

According to The Canadian Encyclopedia, The average Canadian owes $340,000 spread over a mortgage, three lines of credit and two credit cards. However, Line of Credit insurance, like mortgage insurance, generally does not provide the consumer with a very good value. The coverage declines as your line of credit declines. Additionally, it offers the following disadvantages when compared with term life insurance:

1. The coverage is not portable. If you move your line of credit from one institution to another, the coverage is not portable. If your health has changed, it may be you have difficulty re-qualify the coverage. Take the example of someone who develops diabetes subsequent to taking out their line of credit insurance. If they have to apply for a new plan down the road coverage may not be available or it may only be available with a heavy rating due to their diabetes.

2. Non-smokers and smokers are priced at the same rate. With individual life insurance, non-smokers receive a discounted premium when compared with smokers. The discount can be as as 60%

3. Preferred rates are not available. For individuals in very good health, line of credit insurance offers an even worse value.  Preferred rates are available through most life insurance carriers for applicants who are in very good health and have good family health history. Preferred rates can translate into savings of up to 35%. 

4. Coverage is not convertible. Line of credit insurance does not offer a conversion feature. Once the line of credit is paid off, the coverage terminates without value.  Individual term life insurance policies are generally convertible – meaning the insured can exchange the plan without a medical (at the best possible classification) to a Permanent plan.  This can be a huge benefit, if the insured has had a change health and otherwise may find it difficult to qualify for new insurance.

5. Cash value features are not available on Line of Credit insurance. Individual life insurance policies can be sold on a term basis or a permanent basis. Permanent policies often have an investment component attached to the plan, allowing the insured to have a return of premium feature. Some companies offer a wide of investment options on their plans from low risk guaranteed investment accounts to higher risk speciality funds.  BMO Insurance for example offers over 400 different funds on its Universal Life plan.

For more details, please contact us at 1-866-899-4849 or visit our Instant Quote Page.

  

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Ted Logic
Ted Logic

I have a …. line of credit now. I want to add another $100,000 to this amount. Can you let me know the annual premium for …. I was told I get a discount for paying annually if so how much. My DOB is …. and I’m a non smoker

LSM Insurance
LSM Insurance

You’re correct you do get a discount if you pay annually. Usually in 5% to 8% range.

The premiums will depend on the type of plan Term or Permanent. We will be in touch by email now.

Jason Donalds
Jason Donalds

I have a small line of credit. I want a life insurance to pay this off and leave something for my kids. Can you send me some details
.

LSM Insurance
LSM Insurance

Thanks Jason. Yes we would be happy to help. The premiums will depend on your date of birth, smoking status, the amount of coverage and type of plan. We will be in touch by email.