New Jersey Life Producer Practice Exam

Who is the beneficiary in a credit insurance policy?

1. Policyholder

2. Creditor

3. Insured’s estate

4. Dependent

The correct answer is: Creditor

In a credit insurance policy, the beneficiary is typically the creditor. The main purpose of such policies is to protect the lender against the risk of default by the borrower. If the insured individual (the borrower) passes away or becomes unable to fulfill their loan obligations due to specified reasons, the insurance policy pays out to the creditor. This ensures that the outstanding debt is settled, thus protecting the creditor's financial interest. This arrangement differs from standard life insurance policies, where the policyholder usually designates a family member or dependent as the beneficiary to receive the death benefit. In credit insurance, the focus is on safeguarding the creditor's investment rather than providing a benefit to the insured’s estate or their dependents. Hence, in the context of credit insurance, the creditor is the rightful beneficiary of the policy.