State RegulationsTX specificDifficulty 1/5
A Texas consumer purchases credit life insurance in connection with an installment loan. Which statement best describes that coverage?
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Answer & full 3-part explanation (select an option above, or peek)
Why B is correct
Under TIC Chapter 1153 (including 1153.003, .004, .151, .153, .155 and .157) and 28 TAC 3.5001-.5206, credit life insurance is term insurance written on the life of a debtor to satisfy a specific debt; the amount of insurance may not exceed the indebtedness and the term may not run beyond the term of the debt, so the benefit tracks the unpaid balance. Practically, the insurer pays the creditor the balance due at death, and only any excess over the debt goes to the debtor's beneficiary or estate.
Why the other options are wrong
- A) is wrong because credit life follows the declining loan balance rather than paying a fixed face amount.
- C) is wrong because credit life is term coverage; it has no cash value, loan values or nonforfeiture benefits.
- D) is wrong because that describes credit accident and health or involuntary unemployment coverage, not credit life insurance.
Memory hook
Credit life follows the balance, down and out at payoff.