Which of the following is correct regarding credit life insurance
Options:
A) It insures the life of a creditor. B) It has a maximum term of 20 years. C) It insures the life of a debtor. D) It is purchased on an installment basis.
You are viewing: Which Of The Following Is Correct Regarding Credit Life Insurance
The Correct Answer Is:
- C) It insures the life of a debtor.
Correct Answer Explanation:
➦ Credit life insurance is a type of insurance that is designed to protect the lender or creditor if the borrower or debtor passes away before the debt is fully repaid.
➦ This type of insurance helps to ensure that the debt is paid in full and the creditor does not suffer any financial loss.
➦ Credit life insurance is usually taken out by the borrower or debtor and the lender or creditor agrees to accept it as a condition of the loan or debt.
Here’s a detailed explanation of why this option is correct:
C) It insures the life of a debtor:
Credit life insurance is specifically designed to insure the life of the debtor.
➦ A debtor’s insurance policy typically covers the remaining balance of the debt in the event of his death before the debt is paid off.
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➦ In this way, the debtor’s debt will still be paid even if they can no longer make payments due to their death since the creditor (the lender or the entity that provided the credit) will receive the outstanding amount from the insurance policy.
➦ In the event of the death of the debtor, the creditor chooses the amount of coverage that will be sufficient to repay the debt.
➦ In most cases, the insured debtor is responsible for paying premiums for a policy that will cover the duration of the loan. Any co-signers on the loan will also be covered by the policy.
Now, let’s explain why the other options are not correct:
A) It insures the life of a creditor:
➦ This option is incorrect because credit life insurance is not meant to insure the life of the creditor.
➦ Instead, it is designed to provide financial protection to the creditor in the event of the debtor’s death.
➦ The creditor usually pays the cost of the policy as an optional part of the loan.
➦ If a debtor dies before a loan is paid off, the creditor receives a payment. The payment is then used to cover the remaining loan balance.
B) It has a maximum term of 20 years:
This option is incorrect because there is no specific maximum term of 20 years associated with credit life insurance.
➦ Depending on the policy and loan terms and conditions, as well as the specific loan or credit agreement, the term of a credit life insurance policy may vary.
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➦ It is important to carefully review the policy’s terms and conditions to determine the maximum term of the policy.
➦ It may also be short or long, depending on the circumstances. It is also important to read all of the policy’s exclusions and conditions.
➦ Lastly, consulting with an insurance agent or financial advisor is important to understand the policy’s implications.
D) It is purchased on an installment basis:
This option is incorrect because the purchase of credit life insurance is not necessarily tied to an installment basis.
➦ As part of the overall loan or credit agreement, credit life insurance can be purchased as a one-time premium or as a standalone policy.
➦ Its payment options are not restricted to installment payments. Depending on the agreement, policyholders can choose to pay a single premium or multiple premiums.
➦ They can also choose to have the policy terminated once the loan balance has been paid off.
Conclusion:
In summary, credit life insurance is a type of insurance that insures the life of the debtor and is designed to protect the creditor in case the debtor passes away before the debt is fully repaid.
It is not tied to a specific maximum term, nor is it necessarily purchased on an installment basis.
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