What type of life insurance is designed to pay the balance of a loan if the insured dies before the loan is repaid?

• A. Whole life
• B. Credit life
• C. Term life
• D. Universal life

Answer: (B)

Credit life insurance is designed to pay off a loan if the insured dies before the loan is repaid. This type of coverage is tied to a specific debt and is often structured as decreasing term, so the death benefit tracks the loan balance as it’s paid down. The lender is typically named as the beneficiary to ensure the loan is settled. Other life insurance types aren’t debt-specific: whole life provides permanent coverage with a cash value, term life covers a set period and pays to a beneficiary, and universal life offers flexible premiums and cash value but isn’t designed to pay off a particular loan. So, credit life best fits the purpose of paying the loan balance upon death.