New Jersey Life Producer Practice Exam

What type of insurance policy is specifically designed for debtors on a term plan?

1. Group life insurance

2. Term insurance

3. Credit insurance

4. Whole life insurance

The correct answer is: Credit insurance

Credit insurance is specifically tailored to protect lenders by ensuring that, in the event of a debtor's death, the outstanding debt will be paid off. This type of insurance is especially relevant for individuals who have taken out loans or credit obligations, providing peace of mind to both the borrower and the lender. When a debtor passes away, the credit insurance policy pays the outstanding balance directly to the creditor, thereby alleviating the burden on the debtor's estate or family. While group life insurance covers a group of individuals, such as employees of a company, and term insurance offers death benefit protection for a specified period, credit insurance is uniquely focused on debt repayment rather than general life coverage. Whole life insurance, on the other hand, is a permanent life insurance solution that combines a death benefit with a cash value component. Thus, credit insurance stands out as the most appropriate choice for addressing the needs of debtors specifically using a term plan.