Many people with debts worry about how this will burden their family if they should die. Some people find that they can cover this debt with life insurance they already have, or with their savings. If not, there are two other options:
1. Extra life insurance
Term life insurance is the least costly way to cover your debts after you die. Your premiums will never change. Neither will the amount your loved ones get (the death benefit).
Example: You can buy a five-year policy that will pay $25,000 to pay off your car loan if you die. Even if you pay off the debt, there will still be a $25,000 lump-sum payment if you die.
Tip: If you have your own life insurance policy, you can keep the same death benefit as you pay off your debts. Or, you can reduce your insurance to lower your premiums. You are in control. Just as important, you may pay less for your insurance. And, your beneficiary can choose how they will use the money.
2. Creditor life insurance
Creditor life insurance provides a death benefit to cover repayment of a specific debt like a mortgage, line of credit, personal loan, or credit card balances. If you or your spouse dies, the insurance pays off the total balance.
Some creditor insurance also makes monthly payments for you if you become disabled, lose your job, or get a critical illness like cancer, heart attack, or stroke. This helps you keep a good credit rating.
Which type of insurance is better?
It depends on what's most important to you, and on the cost of your coverage.
Protecting a mortgage: Marissa and Marcello's story
The story of Marissa and Marcello can help you learn more about insuring your mortgage. Marissa and Marcello just married and bought a condo together. To learn what insurance they decided to buy, read Protecting a mortgage: Marissa and Marcello's story .
Protecting a car loan: Martha and Marlon's story
You face similar choices if you insure your car loan. Marlon and Martha, for example, are a single-income family with a new baby and a big loan on a new car. They aren?t sure how to protect their family in the event of death or disability. To learn what insurance they decided to buy, read Protecting a car loan: Protecting a car loan: Martha and Marlon's story .
Before you choose insurance for your debts, be a smart shopper. Make sure you know the right questions to ask so you can assess your choices.
Learn more now: Three things you should know before you buy creditor life insurance
Content in this section is provided in partnership with the Investor Education Fund, a non-profit organization promoting financial literacy to Canadians. To find out more go to GetSmarterAboutMoney.ca.