Would you like to get insurance on a mortgage or a car loan? Here is a brief glossary for your information. Keep it as a handy reference.
Group Plan
Most often, loan insurance is offered under a group plan. The lending institution takes out a policy from an insurance company for its borrowers in the same way that an employer (the policyowner) provides a group plan to its employees.
Clients enroll in the plan and pay a premium based on the loan amount they wish to insure.
Application
To enroll in the loan insurance plan, borrowers must first complete an insurance application. The insurer uses the application, containing relatively general questions, to determine whether the borrower is eligible for life and disability coverage or if more information is required.
Insurability Report
Less than 10% of applicants (at Desjardins Financial Security) must also complete an insurability report, usually on account of specific medical conditions. This report contains medical questions that are more detailed than those found on the insurance application, as well as questions pertaining to the applicant's employment and lifestyle (e.g.: practice of a dangerous sport).
Distribution Guide
When borrowers take out loan insurance, they receive a copy of their duly signed and completed insurance application. In Quebec, in compliance with the law, they also receive a distribution guide. This document describes the coverage in greater detail, including the scope of the coverage as well as restrictions and exclusions. It is not the insurance policy, which is kept by the lending institution and available for consultation.
Insurance Certificate
Generally, insurance companies send an insurance certificate to their insureds indicating the coverage they have purchased. At Desjardins Financial Security, the insurance application, as well as the distribution guide in Quebec, comprises the insurance certificate.
Pre-existing Illnesses or Injuries
Most loan insurance products have restrictions in the event of pre-existing illnesses or injuries. As a rule, this means any illness or injury for which a person has been treated in the months prior (e.g. six months) to enrollment. These restrictions are listed in the insurance application or in the distribution guide.
Total Disability
Most often, disability benefits are paid in the event of a total disability. Depending on the case, the disabled person must be unable to perform any of the usual duties of their main occupation or, if unemployed, any of the normal activities of a person of the same age.
