State RegulationsNJ specificDifficulty 1/5
Which statement best describes the purpose of credit life insurance?
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Answer & full 3-part explanation (select an option above, or peek)
Why B is correct
Credit life insurance is built around a single debt: if the borrower dies while the loan is outstanding, the policy pays the unpaid balance so the debt does not fall on the borrower's family or estate. Because the benefit exists to retire a specific loan, the coverage is tied to the loan amount and runs with the loan term. In New Jersey, the sale and administration of credit life coverage to consumers falls under the supervision of the New Jersey Department of Banking and Insurance, which polices how debt-related insurance is marketed and sold.
Why the other options are wrong
- A) The borrower does not freely choose the benefit amount; the coverage tracks the outstanding loan balance rather than an amount the family selects.
- C) Credit life has no retirement function; it responds to death during the loan term, not to the loan being repaid.
- D) Reimbursing a lender for interest losses from default is not the insuring event; credit life responds to the borrower's death, not to payment default.
Memory hook
Borrower dies, balance vanishes: credit life clears the loan, not the family's hands.