Nowadays it seems that everybody has the need to borrow. A loan, line of credit, or mortgage can be an affordable way to fulfil your dreams. You may use a loan to invest in your future, access funds during an emergency, achieve a better level of education or upgrade your lifestyle. And with all the loan options available, you can choose one that’s perfectly suited for your financial or life goal.
What are some advantages of taking out a loan?
You can pay for larger items over time
Most people have a dream item or experience that they wish they could afford. Maybe it’s a new car that’s big enough to fit the whole family comfortably. Or a reliable vehicle you can count on to get you to work no matter what the season (got to love those Canadian winters). An auto loan can help you get the car you need when you can’t afford to buy it outright.
In the same way, a mortgage can help you get the house you need since you probably don’t have $300,000+ sitting idle in your bank account.
The things you want may not even be super extravagant, but you could still need help being able to afford them. Loans allow you to bridge the gap between needing and having.
You can enjoy new life experiences when the opportunity presents itself
Borrowing to take advantage of an experience is incredibly common. You may actually do it all the time, like using a line of credit or credit card to pay for things like concert tickets, vacations, or that NHL playoff game. Credit cards function in much the same way as a loan - you borrow funds and repay them, along with interest. You may even opt for a larger personal loan for a significant experience like a wedding. Life is all about experiences, and loans help you to have them, on your terms.
You can fuel your accomplishments
Another reason you might take out a loan is for your education. Getting a college degree, a research fellowship, or Ph.D. is costly. An education loan will help you with your lifelong learning and career aspirations.
You may also take out a business loan to invest in a start-up or to grow your existing business. Borrowing can help you earn significant revenue for your small business venture.
You can build your credit score or credit rating
A loan helps you to build your credit score or credit rating. How? Your credit score is based on your history of loan or credit repayment. If you repay your loans and credit card bills on time and in full, then your credit score should rise as you build trust as a borrower. On the flip side, if you make late payments or default on paying back your loan, your credit score may decrease. So, if you take a loan and make sure that you never miss a payment due date, you will most likely see a positive impact on your credit score. That means easier future borrowing and better loan rates!
Do I need to take out loan insurance?
Right now, you might find making your loan payments is easy. You have a job, you’re in good health… Why bother with the added expense? If we’ve learned anything over the pandemic, it’s that life changes and in a hurry. If you lost your job or your health was suddenly impaired, you may suddenly find it difficult to make a monthly loan payment. That’s where payment protection comes into play.
Payment protection insurance gives you peace of mind when taking out any kind of loan. It’s a safeguard to ensure your loan payments are made even if you are unable to make them. There are different types of protection – life, critical illness, loss of employment, disability - that can help you navigate any adverse circumstances.
Let’s look at each of them a little more in detail.
What are the types of loan insurance?
Life insurance:
Life insurance can help ensure your family isn’t overwhelmed with debt in the event of your passing. It covers the outstanding balance of the insured mortgage, loan, or line of credit at time of death. You can also purchase optional riders including critical illness, disability, and loss of employment to ensure you cover all your bases. Depending on your payment protection plan you can claim between $90,000 - $1,000,000 to pay off your debt. You can apply for life insurance on your loan from the ages of 16 to 69.
Disability insurance:
Did you know that 1 in 3 people will be disabled for more than 90 days at least once before they reach the age of 65?1 Yikes. Imagine how many bills would pile up, in addition to your current loans. That’s where disability insurance comes in, covering your insured mortgage, loan, or line of credit payments while you are sick or injured. With disability insurance on a personal loan, you can expect to cover at least $1,500 per month of debt repayment, or a total of $108,000 with a maximum benefits term of 72 months.
Critical illness insurance:
Critical illness insurance helps if you should suffer a stroke, heart attack or are diagnosed with life threatening cancer. You can expect to claim anywhere between $90,000 - $1,000,000 tax-free and can apply for critical illness insurance on your loan, mortgage, or line of credit. Be sure to check any loan insurance policy document carefully to be aware of any cancer-related caveats. When you’re ill, debt is the last thing you want to deal with or make your family deal with. Critical illness insurance makes sure you never have to.
Loss of employment insurance:
When you are approved for your mortgage, you (and your Advisor) may feel confident that you can pay it back since you have a steady source of income. However, what happens if you lose your job and with it, your income? You may lose your job for a variety of reasons, some of which could even be a critical illness or disability. In any case, a loss of employment will severely limit your capacity to pay back your mortgage. That’s where loss of employment insurance truly shines - making your mortgage payments for you. While the loss of employment insurance depends on several factors such as how many hours you have worked and the type of employment, there’s no question that it provides a valuable safety net for you and your loved ones.
We hope you’ve learned a bit about loans and the types of loan insurance you can opt for. At Innovation, we partner with CUMIS 2 to provide the best loan insurance to each of our eligible members. If you have any questions about loan insurance, do not hesitate to reach out to us. We’d be happy to help you.
1 Canadian Life and Health Insurance Association, A Guide to Disability Insurance, sourced July 2019.
2 Creditor’s group insurance is optional and is underwritten by Co-operators Life Insurance Company. Supporting services, such as enrolment intake, medical underwriting and claims administration, are provided by the employees of CUMIS Services Incorporated, a subsidiary of Co-operators Life Insurance Company. Coverage is governed by the terms and conditions of the creditor group insurance policy issued to the creditor and is subject to terms, conditions, exclusions and eligibility requirements. See the Product Guide and Certificate of Insurance for full coverage details. To contact CUMIS, please visit www.cumis.com or call 1-800-263-9120.