Texas Life Agent Practice Exam

What type of insurance primarily protects lenders in the event of a borrower's death?

1. Disability insurance

2. Credit Life insurance

3. Homeowners insurance

4. Accidental death insurance

The correct answer is: Credit Life insurance

Credit Life insurance is specifically designed to protect lenders by paying off the balance of a borrower's debt in the event of their death. This type of insurance assures that the lender will recover the money loaned if the borrower passes away before the debt is settled. The policy directly benefits the lender, as the death benefit is typically paid directly to them to cover the outstanding amount. This helps ensure that the financial obligation does not fall on the borrower's estate or their survivors. Disability insurance, while supportive in covering lost income due to a borrower's inability to work, does not address the specific risks associated with a borrower’s death. Homeowners insurance protects against damages to property and liabilities but does not provide coverage related to the death of the borrower in terms of debt repayment. Accidental death insurance offers a benefit in the case of death from an accident, but it does not specifically cater to the needs of lenders regarding outstanding loans. Therefore, Credit Life insurance is the appropriate choice for safeguarding lenders in situations where a borrower dies.