State RegulationsTX specificDifficulty 1/5
A Texas debtor pays off an installment loan early and the credit life coverage on the loan is terminated. What is required?
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Answer & full 3-part explanation (select an option above, or peek)
Why C is correct
Under TIC 1153.151 through 1153.157 and 28 TAC 3.5001-.5206, when the indebtedness is discharged before the end of the scheduled term or the credit life coverage otherwise terminates early, the premium attributable to the period no longer covered is unearned and must be refunded or credited for the debtor's benefit. Practically, a Texas agent or loan officer handling an early payoff must check that the credit is applied, because keeping the unearned premium is a violation even though the premium was paid in a single sum at the outset.
Why the other options are wrong
- A) is wrong because a single premium is earned only as coverage is provided; advance payment does not make it fully earned at issue.
- B) is wrong because credit life is term insurance and carries no nonforfeiture or paid-up options.
- D) is wrong because credit life has no cash surrender value to pay out.
Memory hook
Debt gone early means premium back, pro rata.