Personal Finance

What is LOC Insurance for?

  • Last Updated:
  • Oct 6th, 2009 10:18 am
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Sr. Member
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Nov 24, 2005
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What is LOC Insurance for?

I'm just curious as to what the purpose of Line of Credit Insurance is for?

Let's say someone has $100,000 in Unsecured LOC debt but does not have the LOC insurance and passed away. What happens to the debt? I think it's pretty useless, no?
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Jan 27, 2004
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This is the first thing that popped up from a google search.
http://www.tdcanadatrust.com/lending/li ... it_ins.jsp

From my understanding it protects you and your family if anything were to happen... e.g. death or some sort of serious disability or accident.
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Jul 1, 2007
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The whole purpose of life insurance is to pay expenses at your death or provide for your dependents. The purpose of a life insurance policy on your line of credit is to ensure that your estate doesn't end up having to pay the debt. If you don't have dependents, or don't care about them, and don't have assets anyway, then you don't need life insurance, just as you don't need life insurance on your LOC.
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Jul 8, 2009
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If you need life insurance and don't have it, now would be a good time to get it, and add this into your life insurance. I often get my clients to add life insurance onto their policy for loans such as this, then they can tell the bank they have already taken care of this through their life insurance, which is cheaper and better than creditor insurance.
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hhh wrote:
Oct 4th, 2009 11:32 pm
I'm just curious as to what the purpose of Line of Credit Insurance is for?
A bank could judge you to be a higher lending risk if you didn't carry enough insurance to make the bank whole, in the event of a loss of life. So the Line of Credit insurance could serve the purpose of reducing the cost of borrowing.

It is for this reason that unsecured credit to the elderly has historically been fairly rare.
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Feb 2, 2005
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Any kind of credit or mortgage insurance is for the ultimate benefit of the bank.

You are better off getting some term life insurance, if you are concerned that you have more debt then you do assets and want to leave your kids with an inheritance.

FYI - Your kids are not held liable for outstanding debt in the event of your death. Your estate is held liable and if there is nothing in your estate, then the creditors are stiffed by a stiff.
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T-Bone wrote:
Oct 5th, 2009 4:39 pm
FYI - Your kids are not held liable for outstanding debt in the event of your death. Your estate is held liable and if there is nothing in your estate, then the creditors are stiffed by a stiff.
Never thought about it but wonder if this is the origin of the term "being stiffed".
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pitz wrote:
Oct 5th, 2009 3:52 pm
A bank could judge you to be a higher lending risk if you didn't carry enough insurance to make the bank whole, in the event of a loss of life. So the Line of Credit insurance could serve the purpose of reducing the cost of borrowing.

It is for this reason that unsecured credit to the elderly has historically been fairly rare.
More likely it's that a bank rep would offer you a lower interest rate, possibly one that makes him no money, if they knew they were getting revenue from the insurance sign up. I've never heard of an actual underwriter requiring insurance on a loan for a lower interest rate though. In that way it's kind of tied selling, but to the customer it's usually ambiguous if the former or the latter is the case.
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T-Bone wrote:
Oct 5th, 2009 4:39 pm

FYI - Your kids are not held liable for outstanding debt in the event of your death. Your estate is held liable and if there is nothing in your estate, then the creditors are stiffed by a stiff.
What about your spouse?
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Jan 28, 2009
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Not unless they cosign. Your debts belong to you alone and are paid out of your estate.
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mr_raider wrote:
Oct 6th, 2009 12:22 am
What about your spouse?
Well, half of marital property is owned by the deceased, and the other half by the spouse. Property would not automatically revert to the spouse if there are unsatisfied claims against the estate.

Now, if there is truly no community property, except for exempted assets (ie: RRSPs, pensions) -- then the bank would be out of luck.
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