Which statement correctly describes credit life insurance?

Why A is correct

Credit life insurance is a form of group term insurance sold in connection with a loan or other debt. The creditor is the beneficiary, and the death benefit is limited to the outstanding balance of the debt, so the coverage decreases as the loan is repaid. Because the policy is decreasing term, it builds no cash value and typically requires no medical examination. If the debtor dies, the insurer pays the remaining debt directly to the creditor, relieving the debtor's estate of the obligation to repay the loan.

Why the other options are wrong

• Credit life is term insurance, not whole life; it builds no cash value and pays only the remaining loan balance, not a level benefit to the debtor's family. This answer describes a different situation from the one in the question and is therefore incorrect under the facts given here.
• The benefit is tied to and decreases with the outstanding loan balance; it is not a fixed amount and can never exceed the debt outstanding at the time of death.
• Credit life is typically issued without a medical exam because the benefit is limited to the debt and decreases over time, which lowers the insurer's risk exposure. This choice does not fit the arrangement described in the question, so it is clearly not the right option to choose.

Memory hook

Credit life coverage shrinks along with the loan balance that it secures.