Choosing your policy
To start, you must take into account your situation and coverage needs.
Is this an individual or joint loan? Are you employed, freelance or retired? Are you buying your principal residence or making rental investments? Would you like barebones or optimal coverage?
Figuring out your situation and needs will allow you to find the best insurance policy for your project.
Choosing Your Insured Portion
The insured portion is the percentage of the borrowed capital covered by insurance for each borrower. Consequently, what portion you select depends on the level of coverage you are seeking.
If you are taking out an individual loan, you will not be asked to make this selection, as the bank generally requires you to be 100% covered throughout the duration of the loan.
If you are taking out a joint loan:
- You can choose to divide up the insured portion between yourselves, according to your loan repayment contributions. The bank will generally require the sum of the portions to be 100% minimum.
Example with a 60%-40% portion selection:
If Borrower A (who has a 60% portion) is on work leave, the insurer will reimburse 60% of the the monthly loan repayments. This means that Borrowers A and B are responsible for 40%.
- You can also opt for maximum protection by choosing 100% coverage for both of you (total portion of 200%).
In the event of death, the insurance will pay off the entire loan balance, and the co-borrower will no longer have to make any installment payments.
If you are taking out a joint loan, the sum of your portions must be between 100% and 200%.
Questions to Ask When Comparing Your Choices
The right borrower insurance choice is not always clear. Before making your decision, take the time to ask the right questions. Not all policies are created equal!
1Bear in mind the policy's offered coverage
All policies cover the death of the policyholder during the loan repayment period.
Total and Irreversible Loss of Independence
This is when the policyholder is unable to work for the rest of their life and requires another person to help them with daily life activities.
In practice, the policyholder must need another person to help them with bathing, dressing, travelling and eating.
Total and Permanent Disability
Total and permanent disability most often means that the policyholder is unable to work but does not require another person to help them with daily life activities.
Total Temporary Incapacity to Work
Total temporary incapacity to work is a medically-acknowledged incapacity where the policyholder is completely and continuously unable to work (following an illness or accident).
Loss of Employment
This typically optional coverage is offered in addition to death, disability or incapacity to work coverage. It is not included in all insurance policies.
2Pay particular attention to coverage limits and scope
Note both the reimbursement amount and duration (maximum number of reimbursement days).
The periods during which you cannot be compensated
Borrower insurance policies often include a waiting period (for loss of employment coverage) and deferred periods.
The deferred period applies to incapacity to work and unemployment (loss of employment) coverage.
This period, expressed in a number of consecutive days of work leave or unemployment, is not reimbursed by the insurer. In other words, it is the period after which you can receive compensation.
For example: If you receive the classification of total temporary incapacity to work and your deferred period is 90 days, you will be reimbursed starting on the 91st consecutive day you are on work leave.
Deferred periods reduce your insurance premiums. The longer the deferred period, the lower the rate.
The waiting period only applies to unemployment (loss of employment) coverage.
It is a period at the beginning of the policy during which coverage has not yet been activated. You can only receive the benefits of this insurance policy once this period has ended.
For example: If you have a 6-month waiting period and you are laid off 4 months after signing up for unemployment coverage, you cannot be reimbursed for this lay-off.
In practice, insurance policies allow you to cope with an unforeseen event when the time comes. In no case should they be taken out to reimburse a certain risk. As such, the waiting period allows us to prevent misuse in cases where certain policyholders might take out a policy to contend with losses they were aware of beforehand.
Oftentimes, the policyholder's age when taking out the policy must not exceed 65 or 70, depending on the insurer. Likewise, death coverage no longer applies in most cases after the policyholder turns 80. Additionally, the incapacity to work coverage ends on the retirement or pre-retirement date, or if the policyholder is over 65 (for most policies).
Exclusions are what is not covered by the insurance policy. Besides specific exclusions that the insurer might add depending on your profile when you sign up, here are a few examples of certain policies' coverage exclusions:
- Suicide during the first year of coverage
- Risk of war or nuclear risk
- Air navigation risk (aerobatics, airshows, records, etc.)
- Participation in fights by the policyholder (except in self-defense), plots, strikes, riots or popular movements.
- Performing certain sports or activities (for example, bungee jumping).