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Creditor Insurance

How Can I Protect My Mortgage or Loan Payments?

By Alexandra Macqueen • Published August 1, 2023 • 5 Min Read

Finding the right protection for your loan, mortgage or credit card payments is important. Step one is to understand what options are available so that you make the best choice that works for you.

Borrowing money, whether it’s a mortgage, loan, line of credit, or a credit card can be fulfilling yet overwhelming. On one hand you have access to the money that you need and on the other hand you have taken on the responsibility of repaying that debt. But what would happen if you couldn’t work? Would you be able to continue making your payments? One option to consider is creditor insurance, which can help make your payments when you can’t. Before you decide to get creditor insurance, it’s a good idea to understand what it is, how it can help, and whether it fits in your budget.

What is Creditor Insurance?

Creditor insurance is designed to help reduce or pay off your debt if you pass away — or to help make your monthly payments if you are unable to work due to illness or injury. Some creditor insurance coverage even includes a benefit if you lose your job. The payment made by creditor insurance is called the benefit.

Creditor insurance is an optional insurance coverage offered by the bank or other lenders which you borrowed money from. It can also be called mortgage insurance, loan insurance, credit card balance protection insurance, or debt insurance.

There are four different types of creditor insurance:

Life Insurance

Creditor life insurance can help to pay off or reduce the balance you owe if you pass away, up to the limit that’s stated in the insurance contract, called the certificate of insurance. The benefit is paid directly towards your outstanding balance so your family doesn’t need to worry about making payments.

Critical Illness Insurance

This type of creditor insurance can help pay off or reduce the outstanding balance on your mortgage or loan if you’re diagnosed with a covered critical illness, such as certain types of strokes, cancers, or heart conditions. The type of critical illness conditions that are covered by your insurance will be listed in the certificate of insurance. Similar to other types of insurance, conditions that you have prior to getting the insurance may not be covered.

Disability Insurance

Creditor disability insurance can help make payments on your mortgage, loan or credit card if you are unable to work due to illness or injury. This coverage is geared to help cover your monthly payments while you aren’t working and typically will pay up to a certain limit or time period. The certificate of insurance will tell you which medical conditions are eligible for benefits, how much the benefit is, and how long benefits can be paid.

Job Loss Coverage

Another type of creditor insurance protection is coverage for job loss. This provides a monthly benefit if you lose your job and aren’t earning an income for a certain period of time. Your coverage will pay a set amount each month up to a limit that is set out in your certificate of insurance.

How Do You Get Creditor Insurance?

If creditor insurance is right for you, you can apply for it directly from most banks and other lenders when you apply for a mortgage, loan/line of credit or credit card. It is also often possible to apply for it later.

The application might ask you a few health questions or you might qualify for coverage without answering any health questions. If you change your mind you can cancel the insurance at any time.

Facts About Creditor Insurance

  • It’s easy to apply for.The application is usually quick to complete, and most applicants are approved after answering a few health questions.
  • Convenience of payments. The payments — called premiums — can be added to your mortgage or loan payments.
  • Benefits are paid to your lender and are applied directly to your outstanding balance.
  • Balance-based premium calculation: the insurance premium on a credit card or line of credit is calculated based on the balance you owe at a given time. If you have a high balance your premium will be higher than if you had a lower balance.

For a mortgage or a fixed term loan (a loan with a set end date for repayment), the amount of debt you owe continues to decrease which means the benefit amount will decrease, even though your payments stay the same. And that’s okay because the premium is calculated based on the declining balance and the length of time you’ll owe money.

Is Creditor Insurance Right For Me?

Everyone’s insurance needs are different, so it’s important to consider your insurance coverage as part of your overall financial plan. For example, if you don’t have life insurance in place right now, creditor insurance could be an important part of ensuring you don’t leave loved ones with debt to repay should you pass away. On the other hand, if you already have life insurance, you can have creditor insurance as an added protection. Always remember to revisit your insurance needs as your life changes, so that you are protected in the right way at the right time.

For more information call 1-800-769-2523 to speak with an RBC representative.


*Home and auto insurance products are distributed by RBC Insurance Agency Ltd. and underwritten by Aviva General Insurance Company. In Quebec, RBC Insurance Agency Ltd. Is registered as a damage insurance agency. As a result of government-run auto insurance plans, auto insurance is not available through RBC Insurance in Manitoba, Saskatchewan and British Columbia.

This article is intended as general information only and is not to be relied upon as constituting legal, financial or other professional advice. A professional advisor should be consulted regarding your specific situation. Information presented is believed to be factual and up-to-date but we do not guarantee its accuracy and it should not be regarded as a complete analysis of the subjects discussed. All expressions of opinion reflect the judgment of the authors as of the date of publication and are subject to change. No endorsement of any third parties or their advice, opinions, information, products or services is expressly given or implied by Royal Bank of Canada or any of its affiliates.

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