Insurance on a personal loan or line of credit when your income comes from assignments

Where this insurance comes from

In Canada it is usually called creditor insurance or loan protection: a group policy arranged by the bank, with premiums added to your regular loan payment. Other countries use names such as payment protection or credit life, and the rules differ, so treat the Canadian examples below as illustrations.

CIBC describes its products as optional creditor group insurance underwritten by Canada Life, Canadian Premier Life or Desjardins depending on the product. RBC presents the same idea as an added layer of security alongside any employer coverage.

Whatever the name, the structure is the same: an insurer, the lender as intermediary, a certificate of cover and a premium folded into the payment. That arrangement is convenient, but it also makes the price easy to overlook.

Four possible protections

RBC lists life, critical illness and disability, and states that job loss is not among the covered events. CIBC does offer job-loss cover on personal loans and mortgages, but not on every product. Which cover exists therefore depends on both the lender and the type of credit.

The three standard protections work differently. Life pays down or clears the balance. Critical illness pays after a covered diagnosis such as cancer, heart attack or stroke. Disability usually makes your regular payments rather than clearing the full balance.

• Life: balance reduced or repaid on death.
• Critical illness: lump sum on a listed diagnosis, often with age limits.
• Disability: payments made while you cannot work, for a limited period.
• Job loss: payments or interest covered for a limited time, where offered.

The hours-worked rule that catches agency workers

RBC states that disability cover requires the borrower to have worked at least 20 hours per week on the application date. A worker between assignments, or on a short week, might not meet that test on the day they apply. Read the eligibility wording before relying on it.

Ask the question plainly: if I am between two assignments when I apply, am I eligible, and from what date does cover start? Keep the answer in writing, because a claim is assessed against the conditions in force when you joined.

Seasonal and casual patterns are treated differently from one policy to the next. RBC's insurer, Canada Life, mentions special rules for seasonal employees, which shows that these questions are anticipated and can be answered by the lender if you ask.

Waiting periods and time limits

CIBC shows waiting periods of 30 days for personal loan benefits and 60 days for mortgage disability and job loss. Job loss on its personal loan product pays interest for up to six months. After that, the borrower is on their own again.

A temporary worker facing a month-long gap between contracts may therefore find that a waiting period consumes the entire gap. Cover that pays only after a long absence suits a serious injury, not the normal rhythm of agency work.

What counts as losing a job

Job-loss wording is normally written with permanent employees in mind. Whether the end of an assignment qualifies depends on the certificate. CIBC itself advises confirming employment-related conditions with an advisor or in the Certificate of Insurance.

Look for phrases such as involuntary termination, minimum hours or minimum time with the same employer. If the contract speaks of employment without describing fixed-term or agency arrangements, ask for a written answer.

Judging the cost

Premiums depend on the loan balance, your age, the cover type and the number of people insured; RBC allows a maximum of two. Because the premium is added to the payment, the loan feels cheaper than it is. Add it up over the whole term.

Compare the loan with and without insurance. If the difference is large, consider a cash buffer or a standalone policy instead. Both CIBC and RBC point to ways of reviewing the cover later; CIBC allows cancellation within 30 days of receiving the certificate for a premium refund.

Think also about the loan's size. On a small balance, a month or two of payments may be affordable from savings, and the premium may exceed the risk it covers. On a larger balance, the case for protection becomes stronger.

A short decision test

Ask three questions. Would someone else struggle with the payments if I died or could not work? Do I already have employer, agency or personal cover? Do the conditions fit someone with irregular assignments?

If the answer to the first question is yes and the third is no, look for a different product before accepting this one. If you already have protection, the extra policy may duplicate it. Take the certificate home and read it before the cooling-off period ends.