New Jersey Life Producer Practice Exam

What is the requirement for credit life insurance in terms of coverage amount?

1. Should cover all debt

2. Shall not exceed significant assets

3. Must be equal to or less than the amount of indebtness

4. Can be three times the amount owed

The correct answer is: Must be equal to or less than the amount of indebtness

The requirement for credit life insurance is that the coverage amount must be equal to or less than the amount of indebtedness. This regulation ensures that the insurance policy can effectively cover the outstanding debt in the event of the borrower's death, thereby providing financial security to the lender without exceeding the debt amount. This design prevents consumers from taking on excessive premiums for coverage that would provide a payout greater than the obligation they are insuring, ensuring that the policy remains relevant and directly tied to the amount of debt incurred. In this manner, credit life insurance serves to safeguard both the financial institution and the borrower, ensuring that the death benefit is appropriate for the intended purpose.