New Jersey Life and Health State Practice Exam

What is the maximum amount of Credit Life insurance in relation to debt?

1. May be up to 150% of the debt

2. Can equal the amount of debt

3. May at no time be greater than the amount of debt

4. Must be less than 90% of the debt

The correct answer is: May at no time be greater than the amount of debt

Credit Life insurance is specifically designed to pay off a borrower’s debt in the event of their death. The amount of Credit Life insurance taken out cannot exceed the original amount of the debt. This ensures that the insurance coverage is directly correlated to the amount owed, providing a safety net for lenders and protection for the borrower's estate from having lingering debt. When considering the options, the focus is on the relationship between the coverage and the debt amount. The concept of liability coverage being limited to the debt amount prevents over-insurance, which is often viewed as an unethical practice in financial services. Thus, the assertion that the maximum amount of Credit Life insurance may at no time be greater than the amount of debt accurately reflects industry standards and regulatory practices aimed at protecting consumers from unnecessary financial burden. Other options may suggest amounts that exceed or do not track the debt correctly, which does not align with the principles behind Credit Life insurance.