Which 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 debt protection designed to pay off the remaining loan balance if the insured dies while the loan is still outstanding. The benefit is typically paid directly to the lender to settle the debt, not to the insured’s heirs. It often comes as decreasing-term coverage, meaning the death benefit falls as the loan balance decreases, so the coverage stays aligned with what’s owed. This focus on clearing the loan distinguishes it from other life insurance types, such as whole life, term life, or universal life, whose primary purpose is to provide money to beneficiaries or to offer savings and flexible features rather than specifically guaranteeing loan repayment.