Life can be uncertain. Just think back to late 2019, for instance. Not a soul could have predicted just how the world would be impacted by the COVID-19 pandemic. Many individuals, families, businesses, and industries were significantly impacted, and are still feeling the effects today. Similarly, a critical illness can occur at any time, catching us off-guard and ill-prepared. Did you know that 1 in 4 Canadians develop a critical illness before retirement?1 That’s not all, 1 in 2 Canadians may also develop cancer during their lifetime. 2
Being affected by a critical illness is always tragic, and the situation can become very challenging if you have accumulated any kind of debt. Since you can’t work while battling a critical illness, you may find that your income flow has dried up. There may also be new expenses for healthcare services such as:
- home support,
- elective procedures, or
- specific medications.
The financial burden you and your loved ones may have to face could be quite significant. What happens when you have debt but are unable to repay it due to a critical illness?
Your loved ones may have to pitch in
Sure, you expect your loved ones to care for and support you. Especially in tough times, such as when you are dealing with a critical illness. However, if you are unable to pay back your loans, credit card bills, or any other line of credit, then you may have to lean on your loved ones for financial support as well. This can lead to feelings of extreme guilt for you and seem like an added burden for them. Still, there’s no disputing the fact that the repayment of your debt would fall onto their shoulders.
Your credit score may be impacted
If you are unable to repay your debt because you are critically ill, one of the consequences would be a drop in your credit score. Your credit score or credit rating is dependent on your debt repayment history. If you have been a trustworthy borrower who always makes your mortgage, loan payments and credit card payments on time, then your credit score or credit rating will be high. However, if you default on your payments or delay your payments then your credit score or credit rating will suffer. Even if you can make your payments in the short term, critical illness may make it difficult to continue to make payments in the long term. You may also find that it makes more practical sense to divert funds from debt repayment towards paying for medical expenses. In that case, your credit score or credit rating will be negatively impacted.
You may have to liquidate your assets or use your savings
If a critical illness prevents you from making debt payments, you may have to turn to other avenues to repay your loans. Often, these may include having to liquidate your current assets. This could be your car, any property you own, any luxury items, or even your financial investments. By liquidate we mean that you may have to sell these items or redeem investments to get access to funds. You would then have to use those funds to repay your debt. This is usually quite a dire situation, as your assets could have appreciated over time, and as you are desperate to sell or redeem, you would not be able to get the best deals. It also means leaving less behind for your family or loved ones should you pass on. Similarly, without an income, you may have to dip into your savings, creating a significant dent in your emergency funds or retirement savings.
You may lose your home
This may sound extreme, but if you have purchased your house by taking out a mortgage, then you could very well lose your home if you are unable to make your mortgage payments. When a bank or financial institution allows you to take out a mortgage, they technically own the house. As you repay your mortgage, you own a larger and larger percentage of the property. If you are unable to make your mortgage payments, then the lender has no way to earn back the money you borrowed. If your loved ones cannot pitch in to make the mortgage payments either, or you cannot liquidate some other asset to make the mortgage payments, then your lender is left with little choice other than to foreclose on your property. This means the lender will transfer the ownership of the property back to themselves. You would then not only be battling for your life, but also lose your home.
Wondering if there’s a way to avoid all these consequences in case you happen to suffer from a critical illness? We’ve got you covered! It’s called payment protection insurance or credit /creditor insurance.
What is payment protection insurance or creditor insurance?
Payment protection insurance is also known as credit insurance or creditor insurance. It can help to bring security and increased peace of mind to you and your loved ones, making a difficult time slightly easier. In the event of a death or critical illness, this coverage can pay out a mortgage, loan balance, or line of credit, or make payments on a borrower’s behalf in the event of a disability or job loss (up to a pre-specified maximum). With payment protection insurance, you have the confidence of knowing that your home equity, existing savings, and retirement funds will remain intact. Equally important, your credit rating and standard of living will remain unaffected.
What is the maximum amount that my payment protection insurance will pay?
Single premium payment protection insurance can pay back a debt of up to $90,000.
What is covered with critical illness coverage?
Critical illness coverage pays the outstanding balance of your debit if you suffer a stroke, heart attack, or are diagnosed with life-threatening cancer.
While there are a few rational exclusions, to make sure you get the most impact out of your critical illness coverage, it makes sense to opt for it while you are still relatively young and healthy. Don’t wait to fall ill before you realise how important it is to have payment protection. Which brings us to the next questions you probably have…
At what age can I opt for critical illness coverage? How long does coverage last?
You can opt for payment protection at any point from the ages of 16 to 59. Generally, your coverage will cease when you reach the age of 75. Keep in mind that the maximum coverage term for single premium coverage is 15 years. That means that when you opt for payment protection insurance, you can expect to be protected in case of any critical illness for years to come.
As you can see, payment protection insurance is the answer to making sure your debt is repaid even if you are critically ill. After all, when you’re in times of emotional distress, the last thing you and your loved ones need is any kind of financial distress as well. And the best part? Enrolling is both easy and affordable. So, to opt for payment protection insurance, speak to an Innovation advisor today!
1 Statistics Canada. *If you apply for line of credit coverage prior to age 65, the maximum coverage available is $1,000,000. If you apply for line of credit coverage after you turn 65, the maximum coverage available is $100,000.