Washington State Insurance Practice Exam

What is the main purpose of credit life insurance?

1. To provide a retirement plan for borrowers

2. To pay off a borrower's debt if they die before it's paid off

3. To cover monthly expenses for living

4. To boost a person's credit score

The correct answer is: To pay off a borrower's debt if they die before it's paid off

The main purpose of credit life insurance is to pay off a borrower's debt in the event that they die before the debt is fully repaid. This type of insurance is designed specifically to protect lenders by ensuring that outstanding loans, such as mortgages, auto loans, or personal loans, are satisfied when the borrower passes away. This means that beneficiaries or the estate do not have to worry about the financial burden of the debt, thereby providing peace of mind to both the borrower and the lender. By paying off the debts, credit life insurance helps to safeguard the borrower's family or survivors from the financial stress that could arise from the loss of income and the burden of debt. Unlike other types of insurance or financial products, credit life insurance directly correlates with the outstanding balance of debt, making it tailored for those specific needs. This insurance is distinct from other options, such as providing a retirement plan, covering monthly living expenses, or boosting a person's credit score, as those purposes do not align with the fundamental intent of credit life insurance, which is primarily focused on debt repayment in the event of the borrower's death.