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What Is Creditor Insurance?

Posted by  On August 16, 2021
What is creditor insurance and how can it help you?

Insurance is a vital part of any financial plan. You likely already have car insurance, home or tenant insurance, and life insurance. Depending on your circumstances, you may have additional forms of insurance, such as critical illness insurance or disability insurance. Having the right kind of insurance in place offers you financial protection and gives you peace of mind that you and your family will be protected.

If you run your own business, you likely have even more insurance. At Archway Insurance, we offer a wide variety of business insurance, including cyber insurance and directors and officers insurance.

One type of insurance you may not be familiar with is creditor insurance. We’ll tell you:

  • What creditor insurance is
  • Why people buy creditor insurance
  • Who sells creditor insurance.

No matter what your insurance needs are, at Archway Insurance, we’re here to make sure you’ve got the insurance coverage you need.

What is creditor insurance?

Creditor insurance is a type of insurance used to pay back a creditor (lender) and if purchased from the creditor directly, they are often the named beneficiary. Creditor insurance is offered to borrowers for a variety of products, including:

  • Mortgages
  • Lines of credit
  • Credit cards

The purpose of creditor insurance is to pay off your debt in the event of death so you don’t leave financial burdens on loved ones in receipt of your estate. If an insured event happens, then creditor insurance can help either pay off a debt (such as a mortgage) or maintain payments for a debt (such as for credit cards).

The cost of creditor insurance is impacted by various factors, including your age and the amount of debt you have.

Why do people buy creditor insurance?

There are a variety of reasons that people may want to purchase creditor insurance:

  • It can be part of an overall financial plan to help lessen the impact of unexpected events.
  • It can complement other forms of insurance or work benefits.
  • It gives them peace of mind that a specific debt or bill will be covered.

Creditor insurance can be particularly tempting if you know that you do not have the savings or income to cover your debts. Since it is offered on the spot with your credit product, buyers can be tempted to purchase it to save themselves the hassle of looking for insurance separately.

Who sells creditor insurance?

Creditor insurance is generally sold by whoever is providing the credit to a borrower.

If you get a new credit card, your lender may try to sell you creditor insurance so that your monthly credit card payments are still covered even if you lose your job or become very ill.

If you get a loan from the bank – such as a line of credit or a mortgage – the bank may try to sell you a specific type of creditor insurance associated with that type of loan.

How can Archway Insurance help me with insurance?

If you are considering creditor insurance, you may find that you are better served by buying a different type of insurance, depending on your needs. Creditor insurance can often be more expensive than purchasing an insurance policy from an insurance broker.

At Archway Insurance, we sell several types of insurance that can be an alternative to creditor insurance. These types of insurance are:

  • Life insurance. We sell two different kinds of life insurance – term and whole. Term life insurance is life insurance that provides coverage for a set amount of time – for example, five years. It’s easy to apply for, and the premiums are affordable. Whole life insurance is what it sounds like – you’re covered for your entire life. Whole life insurance has set premiums and a guaranteed payout amount.
  • Mortgage insurance. Banks can offer you mortgage insurance when you take out your mortgage, but it has some disadvantages compared to independent mortgage insurance. The bank insurance value decreases as you pay off your mortgage, and the bank is the beneficiary. With separate mortgage insurance, you choose the amount of coverage you want, and you select the beneficiary.
  • Critical illness insurance. If you are unable to work because of a critical illness, this type of insurance will pay out a one-time, tax-free benefit payment you can use for expenses associated with your illness as well as other bills. It’s your choice how you use the money.
  • Disability insurance. With disability insurance, you can receive income every month that replaces your current salary if a covered illness or disability prevents you from working. Disability insurance covers various health issues, including chronic conditions and mental health problems developed after an accident or illness.

The key benefit that all of these types of insurance offer is flexibility. With creditor insurance, the payout amount and beneficiary are set. The money will always go to the creditor and only cover the debt the creditor insurance is for. With other types of insurance, such as life insurance or critical illness insurance, you or your beneficiary have control over how the insurance payout is spent.

Insurance is an Essential Part of Any Financial Plan

Now you know more about the following:

  • What creditor insurance is – insurance for debt where the creditor (lender) is the named beneficiary.
  • Why people buy creditor insurance – to ensure that a specific debt will be covered if they become ill or are injured and can’t work.
  • Who sells creditor insurance – banks and credit cards companies.

We’ve also talked about good alternatives to creditor insurance, such as life insurance, mortgage insurance, critical illness insurance and disability insurance. All of these types of insurance offer flexibility in their payout – so you or your beneficiaries can decide how to spend it, not your creditors.

Plus, by working with an insurance broker such as Archway Insurance, you’re guaranteed the best possible rate on insurance since we shop around to save you money. We can put together a customized insurance package for you – not just a one-size-fits-all option like creditor insurance.

Contact Us

We’re here for all your insurance needs in New Brunswick, Nova Scotia, and PEI. To learn more about creditor insurance, call Archway Insurance at 1-833-536-0529 or contact us here.

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