What happens if I do not repay?
Nothing compels you, and that is precisely the danger. The figure keeps compounding as unpaid interest joins it, and the insurer weighs the total against the collateral behind it rather than against your income. While it sits well below that ceiling the contract carries on. As it approaches the ceiling the insurer requires action, and the contract can end with tax owing and no cash left inside it to meet the bill.
What kind of answer this is
- Claim type: Contract fact
- Jurisdiction: Contract dependent
The mechanic is written into the loan and termination provisions of the contract. The characterisation of this as the worst available outcome is the author's professional judgment.
How it works
Interest that is not paid is added to what is owed, so the following year runs on a larger figure. The insurer compares that total to the collateral it holds. Two curves are moving toward each other, and only one of them is under your control.
The cost or the catch
Partial payment at any moment lowers both the figure and the interest running on it, and nothing has to be settled at once. The alternative is a letter demanding action from a household that has stopped watching, in a year that was chosen by arithmetic rather than by anybody.
Where this answer may not apply
- Some contracts contain provisions that sustain coverage from accumulated value for a period, and some contain none.
- Insurer practice on the notice given before termination varies, and no general rule replaces your own wording.
- Where a corporation owns the contract the tax consequence arises in the corporation and is analysed separately.
What to verify in your own contract
- The amount owing today, including the interest gathered on it.
- The value available to cover it, taken at the same date.
- The margin between those two figures, reviewed annually rather than once a decade.
- What notice the insurer must give before ending the contract, in the wording itself.
- The taxable amount an ending would produce today, from your accountant.
Continue to the full explanation
Review the options before changing the policy.
Sources
- The loan provision of the policy contract, insurer specific, verified 2026-08-30
- Income Tax Act, Justice Laws Canada, verified 2026-08-30
Accountability and disclosure
- Written by
- José Salloum
- Professional capacity
- Financial security advisor, Canadian Wealth Creation Centre Inc., operating as IBC Financial
- Reviewed by
- Insurance and contract education tier, reviewed under a licensed insurance professional's own authority
- Jurisdiction
- Contract dependent
- Last reviewed
- 2026-08-30
- Version
- 1.0
- Compensation disclosure
- Canadian Wealth Creation Centre Inc., operating as IBC Financial, may receive insurer paid compensation if a policy is purchased. It takes the form of first year compensation followed by renewal compensation, and the amount varies by insurer, product, age, premium, contract design, riders and the arrangement with the managing general agency. No single figure would describe every contract honestly, and none is published here.
- Report a correction
- Info@ibcfinancial.com. Write without a policy number, medical information or account details.
Last reviewed 2026-08-30. By Jose Salloum, Financial Security Advisor.