Credit Life Insurance is:
The Correct Answer Is:
c. issued in an amount not to exceed the amount of the loan
Correct Answer Explanation: c. issued in an amount not to exceed the amount of the loan
Credit Life Insurance is a financial product designed to protect borrowers and their families in the event of unexpected circumstances such as death or disability.
The correct answer, “issued in an amount not to exceed the amount of the loan,” aligns with the fundamental purpose of credit life insurance, which is to cover the outstanding balance of a loan in the event of the borrower’s death.
When a borrower takes out a loan, the lender often offers credit life insurance to ensure that if the borrower passes away before the loan is fully repaid, the insurance will cover the remaining amount owed, thereby protecting the borrower’s family from inheriting the debt.
Now, let’s explore why the other options listed are not the correct answers:
a. “Issued in any amount at the discretion of the applicant”:
Credit life insurance is typically tied to the specific loan amount. It isn’t at the discretion of the applicant to determine the coverage amount arbitrarily. Instead, it’s often a predefined formula or coverage that corresponds directly to the outstanding loan balance.
This ensures that the insurance covers the precise amount owed on the loan, protecting both the borrower and the lender’s interests.
b. “Used in the event of loss of income”:
While loss of income could be a significant financial hardship, credit life insurance is distinct in its purpose. It doesn’t cover income loss due to reasons other than the borrower’s death. Its sole function is to settle the remaining loan balance if the borrower passes away before the loan is repaid.
It’s a specific type of insurance that doesn’t extend its coverage to events like job loss or income reduction.
d. “Coverage that waives the premiums on a loan payment in the event of total disability”:
Credit life insurance isn’t designed to directly address disability-related circumstances. Instead, disability insurance serves the purpose of covering loan payments or other expenses in case of disability.
Credit life insurance doesn’t provide premium waivers or coverage in the event of disability—it’s exclusively for settling the outstanding loan balance if the borrower dies.
Credit life insurance serves a very particular function, distinct from other types of insurance. Its focus remains on protecting against the financial implications of a borrower’s death, ensuring that the outstanding loan amount is settled without burdening the borrower’s family or estate.
The coverage is intricately linked to the loan amount, making it a tailored solution within the lending context