New Jersey Life and Health State Practice Exam

What form can Credit Life Insurance be provided to a debtor?

1. Whole Life Insurance

2. Permanent Life Insurance

3. Group Term Life

4. Variable Life Insurance

The correct answer is: Group Term Life

Credit Life Insurance can be provided to a debtor in the form of Group Term Life Insurance. This type of insurance is specifically designed to cover a group of individuals, typically under a single master policy issued to a creditor. The coverage is limited to the outstanding debt of the individual, and it pays out directly to the creditor in the event of the debtor's death. This approach is advantageous for creditors as it simplifies the management of insurance for multiple debtors under one policy, rather than requiring individual policies for each debtor. Group Term Life Insurance can be relatively cost-effective and offers sufficient coverage to ensure that debts are paid off in the event of untimely death, protecting both the creditor's and the debtor's interests. In contrast, Whole Life Insurance and Permanent Life Insurance are individual policies that have cash value and are designed for long-term coverage rather than specifically for debt repayment. Variable Life Insurance, while also an individual policy that can accumulate cash value, is tied to investment performance and is not typically structured for the purpose of debt coverage like Group Term Life Insurance is.